Foreign Direct Investment, Imports and Innovations in the Service Industry

Knut Blind and Andre Jungmittag

Review of Industrial Organization, 2004, vol. 25, issue 2, 205-227

Abstract: The paper analyses for the first time empirically the impact of foreign competition due to inward foreign direct investment and imports on the innovation activities using data of German service firms. Based on the hypothesis that foreign competition has a disciplining effect on domestic markets derived from the manufacturing sector, a positive impact can be expected on innovation in the service sector, while other theoretical considerations do not absolutely support this optimistic view. In the empirical analysis, variants of two probit models are estimated for a sample of 2,019 service firms to explain their product and process innovation activities. The results show that both foreign direct investment and imports have highly significant positive effects on product and process innovations. Vice versa, the export and foreign production activities of domestic firms support innovations, too. Copyright Kluwer Academic Publishers 2004

Keywords: Foreign direct investment; foreign trade; innovation; market structure; probit estimation; services (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1007/s11151-004-3537-x

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