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Inward FDI and local innovative performance. An empirical investigation on Italian provinces

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Abstract

Do knowledge externalities from FDI foster local innovative performance? Employing manufacturing data for the period 2001–2006 this paper investigates the impact of inward FDI on the generation of innovation. Adopting a Knowledge Production Function approach (KPF), we find that in the case of Italian provinces the presence of foreign investment is beneficial for the innovative performance of recipient economies. These results are robust to a number of checks adding new evidence to the literature on FDI impact. In terms of policy consideration, this implies that a structured policy for the attraction of external capital might channel external sources of knowledge to complement local capabilities.

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Notes

  1. In its simplest definition the ecological fallacy may be interpreted as error of deduction that involves deriving conclusions about a certain observation solely on the basis of an analysis of broader group data. In the case of this analysis the inference on the impact of FDI on local innovative performance may be inaccurate if performed at a broader geographical level of analysis for two key reasons due to the extreme heterogeneity in terms of structure, composition and absorptive capacities of different local areas (Gagliardi 2014).

  2. Hymer’s seminal theory is contained in his 1960 doctoral dissertation which was published posthumously in 1976.

  3. Note that we consider 103 provinces over the total number of 107 because of the lack of data on the 4 more recently-created Sardinian provinces of Olbia-Tempio, Medio Campidano, Ogliastra and Carbonia Iglesias. Note also that provinces are administrative areas in Italy rather than functional units. Alternative geographies include “Sistemi Locali del Lavoro” that are functional labour markets areas defined based commuting flows. However data for these units are more limited and available for much shorter time series. In addition to that it is worth noting that the majority of existing studies in Italy adopts either NUTS2 or NUTS3 areas as spatial unit of analysis. This facilitates the comparability of results.

  4. Patent data at the NUTS3 level are in principle available for a longer time series; however data on control variables at the provincial level prior to 2001 are unavailable. Even though still relatively limited, the coverage of a 6 year period is a significant improvement on the existent quantitative literature on the determinants of innovation in the Italian provinces. All existing studies cover a similar or shorter time span. For example Cainelli et al. (2005) looking at the role of social and institutional factors on the innovative performance of Industrial districts in Emilia Romagna cover the 2002–2007 period; in a similar vein Laursen and Masciarelli (2007), whose analysis is focused on larger geographical units (NUTS-2 Regions), still cover a shorter time interval (2001–2003). More specifically related to the impact of FDI on productivity in the Italian case, Castellani and Zanfei (2003) use firm level data for the period 1993–1997 while Castellani and Zanfei (2007) uses a time span 1992–1997.

  5. Defined as the OECD as the closest data to the inventive process

  6. As acknowledged by the existing literature the between-groups estimator is more suitable to address issues related to measurement error as compared to standard panel techniques such as random or fixed effects estimators.

  7. This is defined in terms of 2-digits NACE classification and data refers to the 1991 Census. Note that the 2-digit dimension has been preferred to more detailed classification in order to account for both broader sectoral spillovers.

  8. Note that in respect to the existing literature our FDI variable reflects the real amount of capital inflows. An average increase of 1 % in the share of FDI over GDP is quantifiable in more than 1 million of Euros while an increase of 29 % in the share of patents over GDP is about 7.46 patents.

  9. This is measured as the value added in manufacturing per unit of labour. Data are available at the provincial level for 2001–2006 and comes from ISTAT. While labour productivity is widely used in the literature, TFP has to be conceptually preferred. However, data on TFP is not available at NUTS-3 level.

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Acknowledgement

The authors wish to thank the organizers and participants to the Workshop on “Innovation, Productivity and Growth in Italy” held in University of Calabria in March 2013, the participant to the ERSA Conference held in Palermo in August 2013 and the participants to the WiP Seminars in Economic Geography, London School of Economics, October 2013.

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Authors and Affiliations

  1. Department of Geography and Environment, London School of Economics (LSE), Houghton Street, WC2A 2AE, London, UK

    Andrea Ascani & Luisa Gagliardi

  2. Centre for Regional Economics, Transports and Tourism (CERTeT), Bocconi University, Milano, Italy

    Luisa Gagliardi

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  1. Andrea Ascani
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  2. Luisa Gagliardi
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Correspondence to Luisa Gagliardi.

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Ascani, A., Gagliardi, L. Inward FDI and local innovative performance. An empirical investigation on Italian provinces. Rev Reg Res 35, 29–47 (2015). https://doi.org/10.1007/s10037-014-0084-2

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