{
  "title": "Knowledge Diffusion Through FDI: Worldwide Firm-Level Evidence",
  "publication": "IMF Working Papers, July 12, 2024",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2024/07/12/knowledge-diffusion-through-fdi-worldwide-firm-level-evidence-551408",
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  "summary": "This paper examines the impact of Foreign Direct Investment (FDI) on knowledge diffusion by analyzing the effect of firm-level FDI activities on cross-border patent citations.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Research question: impact of Foreign Direct Investment (FDI) on knowledge diffusion as measured by cross-border patent citations.\n- Dataset: novel firm-level panel combining worldwide utility patent and citations data with project-level greenfield FDI and crossborder mergers and acquisitions (M&A) data over the past two decades, covering firms across 60 countries.\n- Methodology: new local projection difference-in-differences (LP-DiD) approach applied at the firm level.\n- Main headline result: citation flows between investing firms and host countries increase by up to around 10.6% to 13% in five years after the initial investment."
    },
    {
      "heading": "Data and Methods",
      "content": "- Data components:\n  - Worldwide utility patent and citations data.\n  - Project-level greenfield FDI data.\n  - Crossborder M&A data.\n  - Firm-level panel spanning the past two decades and 60 countries.\n- Empirical approach:\n  - Local projection difference-in-differences methodology tailored to capture dynamic effects of firm-level FDI on cross-border patent citation flows."
    },
    {
      "heading": "Key Findings",
      "content": "- Magnitude and timing:\n  - Citation flows between investing firms and host countries increase by up to around 10.6% to 13% in five years after the initial investment.\n- Directionality:\n  - FDI significantly enhances knowledge flows both from and to the investing firms (i.e., inward and outward citation effects).\n- Heterogeneity:\n  - Effects are stronger when host countries have higher innovation capacities.\n  - Effects are stronger when host countries are technologically more similar to the investing firm.\n- Spillovers:\n  - Knowledge spillovers extend beyond targeted firms and industries in host countries.\n  - Spillovers are particularly pronounced for sectors closely connected in the technology space."
    },
    {
      "heading": "Policy-Relevant Implications",
      "content": "- Enhancing host-country innovation capacity can amplify the knowledge-diffusion benefits of attracting FDI.\n- Policies that increase technological similarity or connectivity between domestic industries and foreign investors may strengthen cross-border knowledge flows.\n- Consideration of sectoral technology linkages is important: sectors closely connected in the technology space experience larger spillovers, suggesting targeted industrial policies could magnify benefits.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2024/07/12/knowledge-diffusion-through-fdi-worldwide-firm-level-evidence-551408"
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    "Authors: JaeBin Ahn, Chan Kim, Nan Li, Andrea Manera",
    "Published: July 12, 2024",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798400280757.001",
    "Research question: impact of Foreign Direct Investment (FDI) on knowledge diffusion as measured by cross-border patent citations.",
    "Dataset: novel firm-level panel combining worldwide utility patent and citations data with project-level greenfield FDI and crossborder mergers and acquisitions (M&A) data over the past two decades, covering firms across 60 countries.",
    "Methodology: new local projection difference-in-differences (LP-DiD) approach applied at the firm level.",
    "Main headline result: citation flows between investing firms and host countries increase by up to around 10.6% to 13% in five years after the initial investment.",
    "Data components:",
    "Empirical approach:",
    "Magnitude and timing:",
    "Directionality:",
    "Heterogeneity:",
    "Spillovers:",
    "Enhancing host-country innovation capacity can amplify the knowledge-diffusion benefits of attracting FDI.",
    "Policies that increase technological similarity or connectivity between domestic industries and foreign investors may strengthen cross-border knowledge flows.",
    "Consideration of sectoral technology linkages is important: sectors closely connected in the technology space experience larger spillovers, suggesting targeted industrial policies could magnify benefits.",
    "**Working Paper**"
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