The influence of fdi on domestic innovation: An investigation using structural breaks

This paper investigates the influence of foreign direct investment on innovation by em-ploying the panel cointegration method incorporating multiple structural breaks and a dynamic common correlated estimation for 34 countries over the period 1991–2016. Our findings indicate that the series of innovation and foreign direct investment are stationary after considering the potential structural breaks and that the external shock is mainly from country-specific shocks. Our results also suggest that a long-run co-integrated relationship exists with one break between foreign direct investment and innovation. Furthermore, the estimation based on the dynamic common correlated estimation shows that foreign direct investment has a long-run significant positive influence on technological innovation. Our findings shed light on the importance of accounting for structural breaks when discussing the relationship between foreign direct investment and technological innovation.