Foreign Direct Investment (FDI) and Indigenous Firms’ Innovation: The Moderating Effect of Environmental Dynamism

Abstract

Strategy, international business and economics literatures have explored whether foreign presence has an impact on innovation and productivity in a host country. A commonly shared argument is that when MNEs conduct FDI, host country firms are exposed to greater technological opportunities, with positive impact (Zhang et al., 2010). These positive externalities are known as FDI spillovers. Recent empirical work has advanced knowledge about FDI spillovers by suggesting various antecedents and moderators, such as strategies of senders (foreign MNE subsidiaries), absorptive capacity of recipients (host country firms), and modes of interaction between MNEs and local industry stakeholders through formal or informal collaborative linkages (Crespo and Fontura, 2007; Smeets, 2008). Despite sophistication of conceptual modelling and fineness of methodology, empirical evidence has delivered mixed results about the impact of foreign presence on a host country (Havranek and Irsova, 2011; Irsova and Havranek, 2013). The lack of consensus in the empirical literature intimates that the impact of foreign presence is subject to a number of unobserved contingency factors (Eapen, 2012).