FDI ATTRACTION AND INNOVATION POLICY: AN ABSORPTIVE CAPACITY APPROACH

Abstract

Foreign Direct Investment represents a strategic issue within countries' industrial policies, provided there is a widespread expectation this particular kind of investment can cause positive shocks on host markets' overall capabilities. Our argument, in consonance with dedicated literature, is that these contributions do not take place without "frictions", and that there is a significant complementarity between FDI's effects and the innovation policy framework (particularly those initiatives that influence the existent level of systemic absorptive capacities). Using panel datasets for developing and developed countries we estimate production functions taking labor productivity, industrial value added, and high-tech exports as output indicators of National Innovation Systems. Through the application of interaction terms we find that levels of absorptive capacity measured by aggregate R&D expenditures determine the effective generation of benefits arising from multinational firms, while human capital conditions seem to play a marginal mediating role in this process.

Keywords

• Foreign Direct Investment
• National Innovation Systems
• Innovation Policy