Assessing the asymmetric linkages between foreign direct investments and indigenous innovation in developing countries: A non-linear panel auto-regressive distributed lag approach

Abstract

Indigenous innovation, which involves innovation by the domestic firms of a country, is continually advocated as a main driver of the economic growth of developing economies. This phenomenon promotes technological innovation which is identified as a key component of industrialisation (Intarakumnerd & Goto 2018; Rodrigues & Da Costa 2018). Industrialisation driven by indigenous innovation is a major determinant of sustainable economic growth in developing countries. Studies on the effect of foreign direct investments (FDI) on innovation were pioneered by Caves (1974), and since then several scholars have reported that FDI facilitates innovation in developing countries (Awate, Larsen & Mudambi 2015; Howell 2019; Maurer 2017; Background: The contributions of indigenous innovation and foreign direct investments (FDI) inflows are critical elements of economic growth and hence very important for developing economies. FDI inflows have been recognised as having a direct influence on innovation in host countries. The relationship between these two variables is explored and well documented in literature. However, these studies have focused on linear relationships between FDI and indigenous innovation, ignoring a possible asymmetric relationship between them.