Foreign Direct Investment (FDI) and indigenous firms’ innovation: The moderating effect of environmental dynamism

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Title of host publicationImpact of International Business
DatePublished - 2016
PublisherPalgrave Macmillan
EditorsHeinz Tuselmann, S. Buzdugan, Q. Cao, D. Freund, S. Golesorkhi
Original languageEnglish
ISBN (Print)978-1-137-56945-5

Abstract

This study investigates the extent to which the impact of foreign direct investment (FDI) on indigenous firms' innovation varies according to environmental features such as levels of dynamism. While theoretical prediction is that FDI positively influences the innovation performance of indigenous firms, empirical results have returned mixed verdicts. This study explores unobserved contingency factors in terms of indigenous firms’ task environments to propose the specific conditions under which the impact of FDI on indigenous firms is likely to be positive. We focus on the influence of environmental dynamism. Based on Korean Innovation Survey data gathered over three waves, we show that indigenous firms’ innovation performance is likely to be affected positively by horizontal FDI spillovers in a stable environment and by backward FDI spillovers in a dynamic environment. This study extends recent research by showing how the impact of FDI depends on dynamic features of the environmental setting in the host country.

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