Foreign financial support and corporate R&D investments: New panel data evidence

Abstract

This study aims to explore empirical relationship between foreign financial support and corporate research and development investments. The statistical analysis is based upon 14 years (2006–2019) financial data of non-financial sector enterprises. We use GLS (generalized least square) and 2-step system GMM (generalized method of moments) to establish the regression among variables. The empirical findings show that FDI inflow, official aid, and remittances have a positive and statistically significant relationship while foreign trade has an inverse relationship with corporate-level R&D activities. Foreign financial support enhances the financial reserves of the government and allows to disburse of more subsidies for R&D activities. Conversely, foreign trade can reduce R&D activities by inducing unfavorable competition which further hampers innovative behavior of corporate managers. The empirical analysis suggests that government officials should do more focus on enhancing foreign financial support to accelerate the development culture in the country.