An integrative approach to international inbound sources of firm-level innovation

Abstract

We analyze the impacts on host country innovation of three knowledge-containing, inbound flows: imports (including intermediate and capital goods), inward licensing and inward FDI (equity participation of foreign firms). We measure firm-level innovation as the number of new products introduced in the host market and new patents registered by the host-country firms. Our study is the first one to examine the simultaneous impacts of these three inbound flows on host-country firms. We empirically test our dynamic models with panel data of manufacturing firms in Spain (1994–2015). We find positive impacts of all three inward flows, as far as introducing new products to the market is concerned. However, higher equity participation of foreign firms reduces host country patenting. The main implication for host-country firms is that openness to international inflows systematically improves the quality of resource combinations, leading to new products being introduced in the market.