Foreign Ownership, R&D and Firm Innovation in ASEAN Countries: A Generalized Ordered Logit Model
Abstract
The study investigates the direct effects of foreign ownership and R&D on firm innovation and the moderating effects of R&D on the foreign ownership–innovation relationship in ASEAN countries. This research focus is important as ASEAN countries have received a large amount of inward FDI as part of their export-led growth strategy, and FDI can bring both benefits and negative impacts for the host country. To the authors’ knowledge, this study contributes as the first attempt to examine this topic in ASEAN. The study employs a novel approach (i.e., generalized ordered logit model (GOLM)) to deal with the restrictive “parallel regression/ proportional odds” assumption of the standard ordered logit model (OLM), which has not been adequately addressed in previous studies on the foreign ownership–innovation relationship. The findings show that foreign ownership relates negatively to the possibility of radical innovation, while R&D relates positively to the possibility of radical innovation. In addition, R&D positively moderates the effect of foreign ownership on the possibility of radical innovation. The findings verify the important role of R&D as a mechanism for absorptive capacity building in the foreign ownership–innovation relationship, which has been under-researched in prior studies on the role of foreign ownership in firm innovation. The policy implications emphasize that ASEAN governments should have more technological regulations and incentives to encourage foreign investors to bring advanced technologies and invest more in R&D.References
Almeida, R., & Fernandes, A.M. (2008). Openness and technological innovations in developing countries: evidence from firm-level surveys. Journal of Development Studies, 44(5), 701-727. doi: 10.1080/00220380802009217.
Almodóvar, P., Saiz-Briones, J., & Silverman, B.S. (2014). Learning through foreign market participation: the relative benefits of exporting, importing, and foreign direct investment. Journal of Technology Transfer, 39(6), 915-944. doi: 10.1007/s10961-013-9324-9.
Barbosa, N., Faria, A.P., & Eiriz, V. (2013). Industry-and firm-specific factors of innovation novelty. Industrial and Corporate Change, 23(3), 865-902. doi: 10.1093/icc/dtt029.
Branstetter, L.G., Fisman, R., & Foley, C.F. (2006). Do Stronger Intellectual Property Rights Increase International Technology Transfer? Empirical Evidence from US Firm-Level Panel Data. The Quarterly Journal of Economics, 121(1), 321-349. doi: 10.3386/w11516.
Brant, R. (1990). Assessing proportionality in the proportional odds model for ordinal logistic regression. Biometrics, 46(4), 1171-1178. doi: 10.2307/2532457.
Chang, S.-J., Chung, C.-N., & Mahmood, I.P. (2006). When and how does business group affiliation promote firm innovation? A tale of two emerging economies. Organization Science, 17(5), 637-656. doi: 10.1287/orsc.1060.0202.
Chen, C.-J., Lin, B.-W., Lin, Y.-H., & Hsiao, Y.-C. (2016). Ownership structure, independent board members and innovation performance: A contingency perspective. Journal of Business Research, 69(9), 3371-3379. doi: 10.1016/j.jbusres.2016.02.007.
Choi, S.B., Lee, S.H., & Williams, C. (2011). Ownership and firm innovation in a transition economy: Evidence from China. Research Policy, 40(3), 441-452. doi: 10.1016/j.respol.2011.01.004.
Choi, S.B., Park, B.I., & Hong, P. (2012). Does ownership structure matter for firm technological innovation performance? The case of Korean firms. Corporate Governance: An International Review, 20(3), 267-288. doi: 10.1111/j.1467-8683.2012.00911.x.
Cohen, W.M., & Levinthal, D.A. (1990). Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35(1), 128-152. doi: 10.2307/2393553.
Douma, S., George, R., & Kabir, R. (2006). Foreign and domestic ownership, business groups, and firm performance: Evidence from a large emerging market. Strategic Management Journal, 27(7), 637-657. doi: 10.1002/smj.535.
Falk, M. (2008). Effects of foreign ownership on innovation activities: empirical evidence for twelve European countries. National Institute Economic Review, 204(1), 85-97. doi: 10.1177/00279501082040011001.
Fu, X., Pietrobelli, C., & Soete, L. (2011). The role of foreign technology and indigenous innovation in the emerging economies: technological change and catching-up. World Development, 39(7), 1204-1212. doi: 10.1016/j.worlddev.2010.05.009.
Ganotakis, P., & Love, J.H. (2010). R&D, product innovation, and exporting: evidence from UK new technology based firms. Oxford Economic Papers, 63(2), 279-306.
Girma, S., Gong, Y., & Görg, H. (2008). Foreign direct investment, access to finance, and innovation activity in Chinese enterprises. The World Bank Economic Review, 22(2), 367-382.
Griffith, R., Redding, S., & Reenen, J.V. (2004). Mapping the two faces of R&D: Productivity growth in a panel of OECD industries. Review of Economics and Statistics, 86(4), 883-895. doi: 10.1162/0034653043125194.
Javorcik, B. (2006). Technological leadership and the choice of entry mode by foreign investors. Washington, DC: World Bank.
Jiang, L.A., Waller, D.S., & Cai, S. (2013). Does ownership type matter for innovation? Evidence from China. Journal of Business Research, 66(12), 2473-2478. doi: 10.1016/j.jbusres.2013.05.037.
Kafouros, M.I. (2008). Innovation: A competitive weapon or a defense mechanism? In M.I. Kafouros (Ed.), Industrial innovation and firm performance: The impact of scientific knowledge on multinational corporations (pp.25-34). Cheltenham, UK: Edward Elgar Publishing.
Karamanos, A. (2015). The effects of knowledge from collaborations on the exploitative and exploratory innovation output of Greek SMEs. Management Dynamics in the Knowledge Economy, 3(3), 361-380.
Long, J.S., & Freese, J. (2006). Regression models for categorical dependent variables using Stata. College Station, Texas: Stata Press.
Love, J.H., & Roper, S. (1999). The determinants of innovation: R & D, technology transfer and networking effects. Review of Industrial Organization, 15(1), 43-64. doi: 10.1023/A:1007757110963.
OECD (2019). OECD Investment Policy Reviews Southeast Asia. Paris, France: OECD.
Olabisi, M. (2017). The Impact of Exporting and Foreign Direct Investment on Product Innovation: Evidence from Chinese Manufacturers. Contemporary Economic Policy, 35(4), 735-750. doi: 10.1111/coep.12227.
Pérez, J.A.H., Kunc, M.H., Durst, S., Flores, A., & Geldes, C. (2018). Impact of competition from unregistered firms on R&D investment by industrial sectors in emerging economies. Technological Forecasting and Social Change, 133, 179-189. doi: 10.1016/j.techfore.2018.03.028.
Prud'homme, D., & von Zedtwitz, M. (2019). Managing “forced” technology transfer in emerging markets: The case of China. Journal of International Management, 25(3), 100670. doi: 10.1016/j.intman.2019.04.003.
Prud'homme, D., von Zedtwitz, M., Thraen, J.J., & Bader, M. (2018). “Forced technology transfer” policies: Workings in China and strategic implications. Technological Forecasting and Social Change, 134, 150-168. doi: 10.1016/j.techfore.2018.05.022.
Schwab, K. (2018). The global competitiveness report 2018. Geneva: World Economic Forum.
Tsai, W. (2001). Knowledge transfer in intraorganizational networks: Effects of network position and absorptive capacity on business unit innovation and performance. Academy of Management Journal, 44(5), 996-1004. doi: 10.2307/3069443.
UNCTAD. (2019). United Nations Conference on Trade and Development database. Retrieved from https://unctadstat.unctad.org.
United Nations Statistical Division. (2002). International standard industrial classification of all economic activities (ISIC) (Revision 3.1). New York, NY: United Nations.
Wang, Y. (2017). Promoting innovation ecosystem from knowledge supplying side. Management Dynamics in the Knowledge Economy, 5(1), 137-147.
Williams, R. (2006). Generalized ordered logit/partial proportional odds models for ordinal dependent variables. Stata Journal, 6(1), 58-82. doi: 10.1177/1536867X0600600104.
World Bank (2018). Survey Methodology. Retrieved from https://www.enterprisesurveys.org/methodology.
World Bank (2019). Foreign Direct Investment. Retrieved from https://datacatalog.worldbank.org/foreign-direct-investment-net-inflows-bop-current-us-2.
Yi, J., Hong, J., Chung Hsu, W., & Wang, C. (2017). The role of state ownership and institutions in the innovation performance of emerging market enterprises: Evidence from China. Technovation, 62/63, 4-13. doi: 10.1016/j.technovation.2017.04.002.
Zahra, S.A., & George, G. (2002). Absorptive capacity: A review, reconceptualization, and extension. Academy of Management Review, 27(2), 185-203. doi: 10.2307/4134351.
Downloads
Published
How to Cite
Issue
Section
License
Under the Creative Commons Attribution-NonCommercial-NoDerivs license, the users are free to share (copy, distribute and transmit the contribution) with the condition to attribute the contribution in the manner specified by the author or licensor. They may not alter, transform, or build upon this work.
