Globalization and Knowledge Spillover: International Direct Investment, Exports and Patents

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This paper examines the impact of the three main channels of international trade on domestic innovation, namely outward direct investment (ODI), inward direct investment (IDI), and exports. The number of Triadic patents serves as a proxy for innovation. The data set contains 37 countries that are considered to be highly competitive in the world market, covering the period 1994 to 2005. The empirical results show that increased exports and outward direct investment are able to stimulate an increase in patent output. In contrast, IDI exhibits a negative relationship with domestic patents. The paper shows that the impact of IDI on domestic innovation is characterized by two forces, and the positive effects of cross-border mergers and acquisitions by foreigners is less than the negative effect of the remaining IDI.
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.
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