Globalization and innovation in emerging markets
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.
We have benefited from valuable comments by Philippe Aghion, Jan Bena, Maitreesh Ghatak, Stepan Jurajda, Renata Kosova, Adriana Kugler, John Van Reenen, the editor and two anonymous referees plus participants at the conference on "Firms in the Global Economy" at the University of Michigan, as well as participants at CERGE-EI and UC Berkeley seminars. We thank Stefano Scarpetta for sharing his data on firm entry, Xiaoyang Li for valuable research assistance, and the European Bank for Reconstruction and Development for partial support of this research. All the usual disclaimers apply. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Yuriy Gorodnichenko & Jan Svejnar & Katherine Terrell, 2010. "Globalization and Innovation in Emerging Markets," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 194-226, April. citation courtesy of