Causal Linkages Between Patenting Abroad and Promoting FDI Through the Prism of Social Network Analysis

ABSTRACT

This paper presents a combination between social network analysis (SNA) and Granger causality tests for 34 members of the OECD in the period 2005–2018. We examine the possible causal linkages which have not been considered adequately so far, between outward-inward FDI and patenting abroad networks for promoting FDI. We demonstrate that linking frequency of patenting abroad and FDI participation increased, and that the bi-directional causal relationship between patentees and official foreign direct investment (OFDI) is strongly heterogeneous with some positive effects. This indicates causality from international patenting to FDI and not vice versa. Hence, the number of patents registered by foreigners helps FDI investors to conduct investments.

KEYWORDS:

• FDI
• granger causality
• international patenting
• network analysis

JEL CLASSIFICATION:

• F10
• F14
• F21
• F23
• O33
• O34
• C13
• C23

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. Reporting type: Count by filing office and applicant’s origin. Indicator : 1 - Total patent applications (direct and PCT national phase entries) https://www3.wipo.int/ipstats/IpsStatsResultvalue.

2. OECD (2019a). Inward FDI flows by partner country (indicator). (Accessed on 08 March 2020), from

https://data.oecd.org/fdi/inward-fdi-flows-by-partner-country.htm#indicator-chart.

OECD (2019a). Outward FDI flows by partner country (indicator). (Accessed on 08 March 2020), from

https://data.oecd.org/fdi/outward-fdi-flows-by-partner-country.htm#indicator-chart.

3. A weighted network is a network where the ties among nodes have weights assigned to them (Wasserman and Faust 1994).

In directed networks, each edge has a direction, pointing from one node to another (here, from the exporting country to the importing country).

4. One example to illustrate an undirected network is by thinking on a subway system map. In a subway map two stations have an undirected connection, which means that the subway can have each one either as a point of origin or as a destination. Conversely, if the subway system was directed the subway could only go from one station to the other, not doing the same way back.

5. The density gives the actual connections relative to the potential connections in a network. A potential connection (PC) is a connection that could potentially exist between two nodes – regardless of whether or not it actually does. $\mathit{PC}=\frac{\mathrm{n}\ast \left(\mathrm{n}-1\right)}{\mathrm{n}}$

6. https://www.wipo.int/ipstats/en.

7. VAR: Describes the evolution of a set of k variables, called endogenous variables, over time. Each period of time is numbered, t = 1,…,T. The variables are collected in a vector, y_t, which is of length k. The vector is modeled as a linear function of its previous value. The vector’s components are referred to as y_i,t, meaning the observation at time t of the i th variable (example, a 5th-order VAR).

8. As of May 2021 there are 38 members of the OECD.

9. Values are significant at 5(10) % level of significance.

10. The residual for each observation is the difference between predicted values of y (dependent variable) and observed values of y. Residual = actual y value − predicted y value.

Additional information

Funding

This work was co-financed by Greece and the European Union (European Social Fund) through the Operational Program, Human Resources Development, Education and Lifelong Learning, in the framework of the Support of Postgraduate Researchers—B cycle (MIS 5033021) implemented by the State Scholarships Foundation (IKY), contract number: 2019–050-0503–1886.

Notes on contributors

Bachar Moussa

Bachar Moussa is Postdoctoral Holder, Associate and Coordinator of the Black Sea and Eastern Mediterranean Academic Network (BSEMAN) at the Faculty of Economic and Political Sciences in Aristotle University of Thessaloniki (AUTh). Greece.

Nikos C. Varsakelis

Nikos C Varsakelis is Professor of Industrial Policy and former Vice-Rector of Finance of Department of Economics, Aristotle University of Thessaloniki (AUTh). Greece.