The Impact of Foreign Direct Investment on Firms´ Innovation Activities

We analyse regional spill-over effects from FDI on innovation activities of domestic firms in Eastern European and Asian transition and post-transition countries. The analysis is carried out using the World Bank 2009 Enterprise survey. We look also at the impact of FDI on innovation activities of domestic firms at regional level. We find the evidence for a non-linear impact of foreign firms on innovation. An increasing regional foreign presence at first reduces innovation activities and then beyond a certain point increases it. This is consistent with the literature which suggests that either effect may be plausible. Foreign owned firms are more likely to engage in product innovation and license products from other firms. We also find the evidence for the positive statistically significant impact of access to bank credit, infrastructure, size of the firm, being part of a group of firms and competitive pressure on innovation activities of firms.