Unpacking the Relationship between Outward Direct Investment and Innovation Performance: Evidence from Chinese firms
East Asia and Pacific, South Asia, Trade and FDI
This study investigates the impact of outward direct investment (ODI) by Chinese MNEs on innovation performance and the conditions under which such an impact is moderated, based on a sample of Chinese firms. The empirical evidence suggests that undertaking ODI leads to an increase in the innovation performance of these Chinese firms. The impact of ODI on innovation is contingent on firm characteristics such as in-house R&D, strategic orientation, and international experiences as well as contextual factors associated with investment destinations and industry contexts. We also find that learning through ODI is a complex process. There is a substitution between ODI and in-house R&D in Chinese MNEs. Our findings suggest that conducting ODI in developed countries serves as an effective channel for latecomer firms to overcome internal resource constraints and leapfrog toward the technology frontier.