Innovation interactions: multinational spillovers and local absorptive capacity

Ronald B. Davies, Mahdi Ghodsi and Francesca Guadagno

No 202516, Working Papers from School of Economics, University College Dublin

Abstract: The hope that multinational firms will improve local employment and productivity is a driving force behind policy efforts to attract investment. Such spillovers are often motivated by technological spillovers from foreign to domestic firms. We address this possibility by using the patenting activity of foreign multinationals in Europe as a measureof affiliate activity alongside more traditional proxies. We find that local firms’ employment and labour productivity is higher when FDI activity increases, particularly when those multinationals are upstream of locals. Furthermore, this effect is particularly significant among domestic patenting firms. Thus, it seems that the benefits of inbound investment are greatest for local innovators who are exposed to inbound innovating foreigners.

Keywords: Spillovers; Foreign Direct Investment; Patents (search for similar items in EconPapers)
JEL-codes: F23 O24 O33 O34 Q55 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2025-06
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