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Inward Foreign Direct Investment-Induced Technological Innovation in Sri Lanka? Empirical Evidence Using ARDL Approach

Priyangani Adikari (), Haiyun Liu and Mmsa. Marasinghe
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Haiyun Liu: School of Economics, Huazhong University of Science and Technology, Wuhan 430074, China
Mmsa. Marasinghe: Department of Environmental Management, Faculty of Social Sciences and Humanities, Rajarata University of Sri Lanka, Mihintale 50300, Sri Lanka

Sustainability, 2021, vol. 13, issue 13, 1-16

Abstract: Fostering innovation is considered one of the key policy priorities in most governments’ agendas in developing countries. Foreign direct investment (FDI) is a principal resource for financing sustainable development, corresponding to 17 sustainable development goals (SDGs). This study analyzes how inward FDI affects innovation in Sri Lanka using secondary data from 1990 to 2019. We used the Autoregressive Distributed Lag (ARDL) cointegration procedure to examine the long-run relationships between variables. As per the study results, the coefficient of inward FDI is a negative sign while the coefficients of education expenditure (EDU) and research and development expenditure (RDE) show positive signs of 0.26 and 5.7, respectively, and are statistically significant in the long run. It is demonstrated that research and development expenditure is vital in explaining technological innovation, and inward FDI inflows do not contribute to widening technological innovation in Sri Lanka. More FDI inflows will not bring higher innovation. Shaping the future of FDI in Sri Lanka is essential to foster innovation capability.

Keywords: foreign direct investment; technological innovation; ARDL approach (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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