Korea Trade Review (무역학회지)

Korea Trade Research Association (한국무역학회)
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The Effects of Foreign Direct Investment on Innovation: Based on 61 Industries in Korea

해외직접투자가 혁신에 미치는 영향: 한국의 61개 산업을 중심으로

  • Yim, Jeong-Dae (BK21 PLUS, School of Businees Administration, Kyungpook National University) ;
  • Lee, Seung-A (Daegu Gyeongbuk Development Institute) ;
  • Jung, Se-Jin (Kyungpook National University)
  • 임정대 (경북대학교 경영학부 BK21플러스) ;
  • 이승아 (대구경북연구원) ;
  • 정세진 (경북대학교 경영학부)
  • Received : 2019.09.26
  • Accepted : 2019.10.15
  • Published : 2019.10.31
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Abstract

This study explores the relationship between outward foreign direct investment (FDI) and innovation in 61 industries of Korea between 1999 and 2016. In order to mitigate the endogeneity problem due to potential reverse causality between FDI and innovation, we use the GMM (generalized method of moments). Our results are as follows. First, FDI has a positive effect on innovation. A possible explanation is that through FDI, multinational companies may assimilate host countries' technologies and knowledge by learning, and then recreating new technologies. Furthermore, this positive effect appears greater, as industrial competition becomes fiercer. This result provides empirical evidence that by recreating technology and knowledge learned through FDI with their own intangible assets, such as patents, they may gain a competitive edge over competitors. Second, this study confirms the greater positive effects of FDI in developed countries, as well as countries with higher technology levels. Finally, strategic asset seeking FDI has the greatest positive impact on innovation in Korean industries. In summary, our findings provide empirical evidence that Korean multinationals can learn technology and knowledge of host countries through FDI to secure a competitive edge in the Korean market.

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References

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