foreign direct investments, innovation and connectivity
TRANSCRIPT
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INNOVAMEASUREIVonlineFinalWorkshopTheimpactofinnovationonfirmsandregions
ForeignDirectInvestments,innovationandconnectivity
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FDIandlocalinnovation
Greenfield Brownfield
Direct
Indirect
Inward
Outward
Mode
Direction
Typeofeffects
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FDIandlocalinnovation
GF
Direct
Inward
• ForeignMNEsaregenerallymoreinnovativethanlocalfirms,hencewhentheyentertheyincreaseinnovation
• Buttheyneedtobuildcapacity,andthismay:
✓ requirehiringlocalinventors
✓ theseinventorsmayeventuallyhavemoreresourcestodoresearchandamoreconduciveenvironment,butitmaytaketimetoadjust
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FDIandlocalinnovation
GF
Direct
Indirect
Inward
• ForeignMNEscanaffectinnovationinlocalfirms
+ knowledgespillovers
+ backward/forwardlinkages
+ labourmobility
- marketstealing
- poachinginventors(warfortalent)
- disruptinnovationnetworks
➡ Intheshortrun,negativeeffectmayprevails
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FDIandlocalinnovation
GF BF
Direct
Indirect
Inward
Outward
• WhenenteringviaM&As,MNEsdonotneedtobuildcapacityandpoachinventors
• Theyjustneedtointroducebetterincentivesandmanagerialpractices
• Maybetheywilldismissthelessproductiveinventors/workers
➡M&Asmayleadtofastermanifestationofpositivedirecteffects
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FDIandlocalinnovation
GF BF
Direct
Indirect
Inward
• WhenenteringviaM&A,MNEsdonotneedtopoachinventorsanddisruptexistingteamsofinventors
• Marketstealingeffectsarelimited
➡Negativeindirecteffectsoninnovationmaybemorelimited
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FDIandlocalinnovation
“Itmaybeusefultodrawananalogybetweenlearningaboutforeigntechnologyandlearningaforeignlanguage.Imightlearnaforeignlanguagefromforeignerslivinginmycountry(“inwardFDI”),orImightlearnitbylivinginaforeigncountry(“outwardFDI”).Botharepotentiallyusefulandimportantmethodsofforeignlanguage(knowledge)acquisition,althoughthelatterperhapstendstobemoreeffective(itismorelikelytoinvolve“totalimmersion”).”Potterie,B.V.P.D.L.,&Lichtenberg,F.(2001).Doesforeigndirectinvestmenttransfertechnologyacrossborders?.ReviewofEconomicsandstatistics,83(3),490-497.
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FDIandlocalinnovation
GF BF
Direct
Inward
GF BF
Inward
Outward
Direct
Indirect
• Offshoringofinnovationisoftenseenasleadingto‘hollowingout’
• Instead,thereisampleevidencethatitcouldleadto‘reverseknowledgetransfers’
• ThesearethedirecteffectsofoutwardFDIonlocalinnovation
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FDIandlocalinnovation
GF BF
Direct
Indirect
Inward
GF BF
Inward
Outward
Direct
Indirect
• Eventually,these‘reverseknowledgetransfers’canspilloverontolocalfirms,thusleadingtoindirecteffectonlocalinnovation
DamioliandMarinarenotabletodistinguishbetweendirectandindirecteffectsspecifically,buttheirresultareconsistentwith:- greenfieldinwardFDIleadtoareductioninlocalinnovation,asleadinginventorsarepoachedtoworkinnewlycreatedMNEsubsidiaries
‣ thismaydisruptinnovationnetworksandnegativelyaffectinnovationinlocalfirms
‣ intheshort-run,poachedinventorsarelessproductiveinnewfirms(MNEsubsidiaries)
‣ inthemedium-run,positiveexternalities(includingknowledgespilloversandmobilityfromMNEstolocalfirms)mayoccur
- M&Amayhavesomepositiveeffectintheshort-run,sincetheydonotdisruptlocalinnovationnetworksanddonotinduceawarfortalent
- InnovativeoutwardFDImaybemoreeffectiveinproducingpositiveeffectsforlocalinnovation
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FDIandlocalinnovation
Theseresults• strikeamorenegativetonethanotherstudiesonFDIandlocalinnovation(e.g.Crescenzi,DyèvreandNeffke,2020;Crescenzi,GagliardiandIammarino,2015),butDamioliandMarin’sanalysis:- spansamuchshortertimethanCrescenzi,DyèvreandNeffke,(2020)
- isnotlimitedtoonecountryasinCrescenzi,GagliardiandIammarino(2015)
• alignwithevidenceonreversetechnologytransfer(Criscuolo,2009;Hsu,LienandChen,2015)andontheeffectofR&DoffshoringonproductivitygrowthofEUregions(CastellaniandPieri,2013)
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FDIandlocalinnovation
Policytakeaways- whenitcomestocontributiontolocalinnovation,M&AmaynotbeacurseandGFmaynotbeaboon
- negativeshort-runeffectsmaybecompensatedbymedium-run
- hollowingoutisnotthemorelikelyoutcomeofoffshoringofinnovation‣ ‘reverseknowledgetransfer’ishighlylikely
➡short-termismandpopulismdonotchimewellwithgoodinnovationpolicy
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FDIandlocalinnovation
• ThepotentialimportanceofbothinwardandoutwardFDIforlocalinnovationhighlighttheirroleasconnectorsofplacesacrossspace
• Innovationevolvesinverypathdependentandlocalisedpatterns,thanksthroughdenseaweboflocalinteractions(“localbuzz”)
• Thiscreateahighlypolarisedgeographyofinnovation,withonlyafewinnovationhotspots/clusters.
• Tobreakthispolarisation,places/clustersneedtobuild‘globalpipelines’thathelpthemtapintoknowledgebasesoutsidetheregionandmitigateagainstbothcognitivegapsandlock-ins.
• Placeswhichareleftoutcantryandconnecttothesehotspots
• Localbuzzcanbecomeredundantandneedtobefedwithknowledgeexternaltothecluster
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FDIandconnectivity
Aquaro,DamioliandLengyelshowthat• EuropeanregionsareindeedpartofadensenetworkofM&As
- thenetworkofinnovativeM&Asismoresparseandinternational
- thisisconsistentwiththeviewthat
‣ therearefewerplacestoconnecttointhecaseofinnovationactivities
‣ thesearelikelytobemoredistantandabroad
‣ EUregionscanuseM&Astoconnecttothesesourcesofknowledge
• InvestinginR&DiscrucialforEUregionstobeabletoconnecttotherestofEurope(andtheworld)
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FDIandconnectivity
TheanalysisinAquaro,DamioliandLengyelcouldbeextendedto:• drilldownintothenatureoftheinnovativevs.non-innovativeM&Anetwork,byhighlightingtheextenttowhichtheyconnectEUregionstomoreproximatevs.distantregions(e.g.othercountrieswithintheEUoroutsidetheEU)
• investigatewhetherthemoreperipheralEUregionsconnectdirectlytodistanthotspots,orratherusenationalorcontinental‘bridgingregions’
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FDIandconnectivity