Working Paper: NBER ID: w14481
Authors: Yuriy Gorodnichenko; Jan Svejnar; Katherine Terrell
Abstract: Globalization brings opportunities and pressures for domestic firms in emerging markets to innovate and improve their competitive position. Using data on firms in 27 emerging market economies, we estimate the effects of foreign competition, vertical linkages with foreign firms, and international trade on several types of innovation by domestic firms. Using instrumental variables and a battery of checks, we provide robust evidence of a positive relationship between foreign competition and innovation and show that the supply chain of multinational enterprises and international trade are also important channels. There is no evidence for an inverted U relationship between innovation and foreign competition. The relationship between globalization and innovation does not differ across the manufacturing and service sectors.
Keywords: Globalization; Innovation; Emerging Markets; Foreign Competition; FDI
JEL Codes: F23; M16; O16; P23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased foreign competition (F69) | Positive effect on innovation among domestic firms (O39) |
| Vertical linkages with multinational enterprises (MNEs) (F23) | Higher rates of innovation (O39) |
| Competition (L13) | Innovation (O35) |
| Inverted U relationship between competition and innovation (O36) | No significant effect (C29) |
| Globalization (F60) | Innovation (O35) |