Does FDI Foster Technological Innovations? Empirical Evidence from BRICS Economies

Does FDI Foster Technological Innovations? Empirical Evidence from BRICS Economies
Authors: Najabat Ali, Khamphe Phoungthong, Anwar Khan, Shah Abbas, Azer Dilanchiev, Shahbaz Tariq, Muhammad Nauman Sadiq
Journal: PLoS ONE
Published: March 9, 2023

This study investigates the impact of foreign direct investment (FDI) on technological innovation in BRICS countries from 2000 to 2020. Using advanced econometric techniques—including cross-sectional dependence tests, second-generation unit root tests, panel cointegration, the Dumitrescu-Hurlin causality test, and long-run estimators (AMG and CCEMG)—the research assesses the relationship between FDI, trade openness, economic growth, R&D expenditure, and innovation.

The findings reveal that FDI significantly stimulates technological innovation in BRICS economies, confirming the positive spillover effects of multinational enterprises. Trade openness, GDP per capita, and R&D expenditure are also shown to positively influence innovation, while bidirectional causality exists between GDP, R&D, FDI, and technological innovation. The study highlights that inward FDI enhances knowledge transfer, technological advancement, and patent development, particularly when complemented by trade liberalization and increased R&D spending.

Policy implications suggest that BRICS countries should prioritize attracting FDI and promoting trade openness to catalyze innovation. Governments are encouraged to increase R&D investment and implement effective strategies to integrate FDI into national innovation systems. This approach can accelerate technological development, enhance competitiveness, and support long-term economic growth within BRICS nations, demonstrating the crucial role of FDI in fostering sustainable technological progress.