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Foreign Direct Investment as a Development Strategy: Knowledge Diffusion and Innovation Capability in Competing Emerging Economies

Foreign Direct Investment as a Development Strategy: Knowledge Diffusion and Innovation Capability in Competing Emerging Economies
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Author(s): E. Nur Ozkan-Gunay (Bogazici University, Turkey)and Yusuf Cukurcayir (Bogazici University, Turkey)
Copyright: 2013
Pages: 17
Source title: Industrial Dynamics, Innovation Policy, and Economic Growth through Technological Advancements
Source Author(s)/Editor(s): I. Hakan Yetkiner (Izmir University of Economics, Turkey), M. Teoman Pamukcu (Middle East Technical University, Turkey)and Erkan Erdil (Middle East Technical University, Turkey)
DOI: 10.4018/978-1-4666-1978-4.ch002

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Abstract

This chapter investigates the spillover effects of Foreign Direct Investment (FDI) on innovation capability in four competing emerging economies in the district of Eastern Europe, the Czech Republic, Hungary, Poland, and Turkey, for the period 1995-2008. Panel data models are employed to test two competing hypotheses regarding the impact of FDI on innovation capability: it may improve the innovation capability of host countries via spillover channels, or may lead to the crowding-out effect through the importation of technologies via joint ventures. The empirical evidence corroborates that FDI inflows generate spillover effects on domestic innovation capability in competing emerging countries, supporting the hypothesis that inward FDI brings knowledge spillovers, new technologies, and products into the host country and promotes the innovation capability of domestic firms. In addition, the level of human capital stock and qualified researchers play a crucial role in stimulating innovative capability and technological progress.

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