Knowledge Diffusion Through FDI: Worldwide Firm-Level Evidence

JaeBin Ahn, Chan Kim, Nan Li and Andrea Manera

No 2024/152, IMF Working Papers from International Monetary Fund

Abstract: This paper examines the impact of Foreign Direct Investment (FDI) on knowledge diffusion by analyzing the effect of firm-level FDI activities on cross-border patent citations. We construct a novel firm-level panel dataset that combines worldwide utility patent and citations data with project-level greenfield FDI and crossborder mergers and acquisitions (M&A) data over the past two decades, covering firms across 60 countries. Applying a new local projection difference-indifferences methodology, our analysis reveals that FDI significantly enhances knowledge flows both from and to the investing firms. Citation flows between investing firms and host countries increase by up to around 10.6% to 13% in five years after the initial investment. These effects are stronger when host countries have higher innovation capacities or are technologically more similar to the investing firm. We also uncover knowledge spillovers beyond targeted firms and industries in host countries, which are particularly more pronounced for sectors closely connected in the technology space.

Keywords: Greenfield FDI; Brownfield FDI; cross-border M&A; Inward FDI; Outward FDI; Knowledge spillover; Patent citation; LP-DiD; investing firm; FDI activity; FDI measure; impacts of FDI; Foreign direct investment; Spillovers; Absorptive capacity; Stocks; Global (search for similar items in EconPapers)
Pages: 57
Date: 2024-07-12
New Economics Papers: this item is included in nep-cse, nep-fdg, nep-ino, nep-int, nep-knm, nep-sbm, nep-tid and nep-ure
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