The role of internationalization as a determinant of innovation performance: an analysis of 42 countries

This paper analyses the impact of internationalization on the innovation performance of 42 countries. Innovation performance – the dependent variable – is measured by the number of triad patents and PCT applications that originate from a country. The following internationalization variables – independent variables – are used: inward and outward stock of FDI, exports and imports as well as the number of parent companies in a country. Information on patents and the internationalization variables, together with further explanatory variables, including the number of scientific articles in a country, the number of Internet users, the R&D intensity and the share of value added in services, are collected for the years 1990 to 2008. Regressions are performed for all countries together, and, then, for two groups of countries clustered on the basis of their GDP per capita. We estimate two linear models, one based on pooled data estimating the classic linear model, and one on panel data, estimating a fixed effects linear model. The values of our dependent variables lead by up to six years for two reasons: to account for the time that elapses between an invention and the recording of the patent statistic, and, to address at least to some extent, issues associated with endogeneity in our independent variables. The paper finds support for a positive impact of internationalization on countries’ innovation performance. Our analyses suggest that competing in international markets via outward FDI and exports increases the scope of learning and the need to innovate. We find evidence of a negative relationship between patenting and inward FDI as well as imports. We interpret our results to indicate that (a) the inward inflow of investment or products can be less innovation-intensive than a country’s domestic activities which would be the case for more advanced and innovation-active countries; or (b) that a country does not have a sufficient absorption capacity to benefit from inflows