Does foreign ownership enhance technological innovation amongst manufacturing firms in Sub-Saharan Africa?

Abstract

Many African nations have over time relied on the use of foreign ownership to enhance technological innovation in manufacturing firms. The literature on the subject is, however, mixed. While foreign-owned firms can benefit from the technological innovations of foreign sources because of their superior nature relative to local innovation systems, these innovations may not be forthcoming for several reasons, including an uncompetitive business environment. In this paper, we test this hypothesis for Sub-Saharan Africa by relying on a sample of 1157 manufacturing firms from the World Bank Enterprise Surveys. By defining technological innovation as product and process innovations and using the Probit estimator, we find that foreign-owned firms are less likely to introduce product innovation. For process innovation, we did not find foreign ownership to have a significant effect. These findings have some implications for policy. First, the paper throws a spotlight on the kinds of foreign affiliations in the manufacturing sector of Africa and suggests that there must be a deliberate effort to attract the forms that are beneficial to local innovation systems. Second, the paper finds that an improvement in the general business environment can be crucial in attracting foreign firms that will improve local innovation systems.