ABSTRACT
Recent years have witnessed substantial outward foreign direct investment (OFDI) from many emerging economies. Should the governments of these economies encourage OFDI in order to promote domestic innovation? Much OFDI by emerging economy multinational enterprises (EMNEs) has been undertaken to acquire strategic assets overseas, but do these acquisitions bring innovation benefits at home? The empirical analysis presented in this paper considers the effects of OFDI on regional innovation performance, using a panel of Chinese provinces, and finds that OFDI has a very significant impact on domestic innovation. Furthermore, we also identify three contingent factors – absorptive capacity, foreign presence, and the competition intensity of the local market – that moderate the impact of OFDI on innovation performance.
5. Conclusions
Many authors have investigated the beneficial impact of inward foreign direct investment on innovation performance in emerging economies, including several studies related to China (e.g. Fu, 2008; Cheung & Lin, 2004). But little is known about the potential effects on domestic innovation performance of outward foreign direct investment, particularly in the context of emerging economies. Yet OFDI from emerging economies has increased dramatically in recent years often, as in the Chinese case, supported strongly by home country governments. The empirical analysis presented in this paper considers the effects of OFDI on innovation performance in 30Chinese regions over an eight-year period (2003–2010), and finds that OFDI has a very significant (both statistically and economically) impact on domestic innovation. Furthermore, we also identify three contingent factors – absorptive capacity, inward FDI, and the competition intensity of the local market – that moderate the impact of OFDI on innovation performance. We found a complementary relationship between inward and outward FDI on regional innovation. This result echoes recent calls for more attention to be given to the effects of inward FDI on outward FDI in China (Deng, 2012).
