Do Foreign Direct Investments and Trade Openness Foster Technological Capacity? Empirical Evidence From Selected Countries

This study investigates the long-run effects of Foreign Direct Investment and trade openness on technological complexity across 29 countries, over the period 1997-2022. Using patent data from the OECD-REGPAT database, a patent-based technological complexity index is computed through the fitness-complexity algorithm. The empirical analysis employs the Augmented Mean Group estimator after controlling for cross-sectional dependence, heterogeneity, and potential structural breaks. The results reveal a statistically significant positive long-run impact of Foreign Direct Investment on technological complexity, confirming its role as a channel for technology diffusion and capability upgrading. In contrast, the effect of trade openness is heterogeneous and context-dependent, suggesting that openness enhances technological capacity only when supported by strong absorptive and innovation capabilities. The findings highlight the importance of integrating Foreign Direct Investment-driven knowledge inflows with domestic innovation strategies to strengthen technological sophistication and sustain long-term competitiveness.