The Relationship Between FDI Through Backward Linkages and Technological Innovations of Local Firms: Evidence for Emerging Economies

This article investigates the relationship between foreign direct investment through backward linkages and the innovation activities of local firms. The data consist of firm-level data drawn from the Community Innovation Survey for eight Central and East European countries. Based on 38,000 firms, probit estimates show that the innovation performance of local suppliers only benefits from the presence of foreign-owned firms when the labor productivity gap with foreign-owned firms is not too large. Furthermore, it is not the physical presence of foreign firms in the same industry that stimulates the innovativeness of local firms, but rather their own intrinsic innovativeness.