Does Foreign Entry Spur Innovation?

43 Pages Posted: 4 Sep 2015

See all articles by Yuriy Gorodnichenko

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Jan Svejnar

School of International and Public Affairs, Columbia University, NY, USA; CEPR; IZA; CERGE-EI; University of Ljubljana

Katherine Terrell

Stephen M. Ross School of Business at the University of Michigan; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; Gerald R. Ford School of Public Policy

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Abstract

Our estimates, based on large firm-level and industry-level data sets from eighteen countries, suggest that FDI and trade have strong positive spillover effects on product and technology innovation by domestic firms in emerging markets. The FDI effect is more pronounced for firms from advanced economies. Moreover, our results indicate that the spillover effects can be detected with micro data at the firm-level, but that using linkage variables computed from input-output tables at the industry level yields much weaker, and usually insignificant, estimated effects. These patterns are consistent with spillover effects being rather proximate and localized.

Keywords: innovation, FDI, spillovers, horizontal and vertical linkages, emerging markets, foreign competition

JEL Classification: F23, M16, O16, P23

Suggested Citation

Gorodnichenko, Yuriy and Svejnar, Jan and Terrell, Katherine, Does Foreign Entry Spur Innovation?. IZA Discussion Paper No. 9259, Available at SSRN: https://ssrn.com/abstract=2655299 or http://dx.doi.org/10.2139/ssrn.2655299

Yuriy Gorodnichenko (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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Berkeley, CA 94720-3880
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HOME PAGE: http://www.econ.berkeley.edu/~ygorodni/index.htm

National Bureau of Economic Research (NBER) ( email )

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IZA Institute of Labor Economics ( email )

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Jan Svejnar

School of International and Public Affairs, Columbia University, NY, USA ( email )

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CEPR

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IZA

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CERGE-EI

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University of Ljubljana ( email )

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Katherine Terrell

Stephen M. Ross School of Business at the University of Michigan ( email )

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Ann Arbor, MI MI 48109
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Gerald R. Ford School of Public Policy ( email )

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