Foreign direct investment as a way to guide the innovative process towards sustainability

Abstract

In 1972, for the first time, the term “sustainable development” was coined at the Stockholm conference, and in 1987, the Brundtland report established the sustainability-innovation “binomial”. Since then, extensive research into sustainability-oriented innovation has been conducted, focused during the last decade on SMEs and recognizing these as the main actor of sustainable development, for which foreign direct investment (FDI) is considered, from a research and institutional point of view, as a vital source, although academic literature presents conflicting conclusions. In this context, this paper aims to perform a microeconomic analysis of how FDI influences the innovative process of SMEs and how this can lead to a process oriented towards sustainability. To this end, a panel of 4667 SMEs has been analyzed, spanning a sample period between 2004 and 2013, through a binary logit model, which compares and contrasts SMEs with FDI and equivalent SMEs without FDI, over time and, therefore, exposed to a changing economy. The most significant results are that FDI is attracted mainly by factors associated with technological supply, which, when coupled with being of medium size and located in a manufacturing sector of medium-high technology, generates positive spillovers. These depend, to a large extent, on public funding, which allows these companies to be more innovative and makes it more likely they focus their innovative process on sustainability.