Does Foreign Direct Investment Boost Innovation? The Case of the Visegrad and Baltic Countries

Abstract

Purpose: The purpose of the paper is to examine the impact of inward and outward foreign direct investment on innovation performance of the Visegrad and Baltic countries. Methodology/Approach: The study follows an open-system approach to consider the determinants of national innovation performance, taking into account both inward and outward FDI. We use two-step analysis that combines panel data regression analysis with the design of two FDI – innovation performance matrixes. Findings: The results of the study provide evidence that only outward foreign direct investment of domestic firms contributes significantly to the innovation performance of these countries and that this effect is more visible in the case of the Visegrad countries. Research Limitation/Implication: The limitations of the study are associated in particular with the selection of SII as a measure of national innovation performance. The use of this indicator is also related to the relatively short period of availability of consistent data, especially in connection with changes in the methodology of SII calculation. Originality/Value of paper: The policy implications of the paper suggest the need for stronger support of domestic bearers of cross-border capital movements in an attempt to boost national innovation performance.