Globalization and knowledge spillover: international direct investment, exports and patents

Abstract

This paper examines, within the context of globalization, the impact of the main channels of international trade on domestic innovation, namely outward direct investment (ODI), inward direct investment (IDI), cross-border mergers and acquisitions (M&A) by foreigners, R&D expenditure, exports, and imports. The number of approved Triadic patents serves as a proxy for innovation. The data set contains 37 countries that are considered to be highly competitive in world markets, covering the period 1994–2005. The empirical results show that increased exports and ODI are able to stimulate an increase in approved patents. In contrast, IDI exhibits a negative correlation with domestic patents. Imports are shown not to have a significant impact on international technology spillovers. The paper shows that the impact of IDI on domestic innovation is characterized by two forces, namely the cross-border M&A by foreigners and remaining IDI, both of which are found to be negative.

Keywords:

• international direct investment
• exports
• imports
• triadic patent
• outward direct investment
• inward direct investment
• R&D
• negative binomial model

JEL Classification::

• F14
• F21
• O30
• O57

Acknowledgements

The authors are most grateful to the Editor and two referees for helpful comments and suggestions. For financial support, the first author acknowledges the National Science Council, Taiwan; and the third author acknowledges the Australian Research Council, National Science Council, Taiwan, and the Japan Society for the Promotion of Science.

Notes

According to the World Bank's income classification, income can be subdivided into the following four levels: high, upper-middle, lower-middle, and low.

This refers to shares of companies bought by foreign direct investors outside the countries in which they reside.

This refers to the portion of the surplus on the direct investors’ investments that is retained and used for reinvestment.

This refers to the loans in the form of short-term or long-term funds between direct investors and affiliated companies.

Although this paper discusses the random effects model, each of the tables also lists the results for the fixed effects model.

Based on the random effects model, the L1_GERD coefficient has a value of 10.244, and the L1_BERD coefficient a value of 15.235.

As IDI has a negative relationship with patents, our goal is to compare which of the two impacts of IDI on triadic and unilateral patents has the greater influence. The existence of a negative value will influence the results, and so it is necessary to use absolute values.