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AEC 2012 - Can FDI Foster Inclusive Innovation and Technology Development in Africa

25-oct-2012

Does the presence of foreign owned firms assure the economy of new production techniques and greater investment in domestic innovation? With the use of innovation indicators for firms provided in the World Bank Enterprise Surveys, we examined the innovative activity of firms in the manufacturing sectors of Kenya and Nigeria. A binary logistic regression model was formulated to assess the likely influence of several firm-specific characteristics on firm’s engagement in product and process innovation. The estimation results indicated that an improvement in domestic firm products and processes owing to the presence of foreign-owned or operated firms in the sector is not automatic. For both Kenya and Nigeria, process innovation is mostly influenced by the intensity of foreign competition, possession of internationally recognized quality certifications, ICT usage as well as the ownership status of the firm. We conclude that it is via the learning experiences provided by supply linkages and technology licensing that domestic firms take on advanced techniques and management practices employed by foreign-owned and foreign-operated firms.

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