Foreign Direct Investment Inflows and Innovation Activity in ASEAN Economies

Nguyen Hai Nam

doi:10.36690/2674-5216-2026-2-68-78

Authors

Nguyen Hai Nam HUTECH University

DOI:

https://doi.org/10.36690/2674-5216-2026-2-68-78

Keywords:

foreign direct investment, innovation activity, ASEAN economies, research and development, system GMM, technology spillovers, absorptive capacity, human capital, property rights, machinery imports, economic growth, domestic innovation

Abstract

Foreign direct investment has become one of the main drivers of economic development, industrialization, export expansion, and integration into global value chains in ASEAN economies. At the same time, innovation activity has become a strategic priority for the region as ASEAN countries seek to move from labour-intensive production toward knowledge-based and technology-driven development. However, the relationship between foreign direct investment and domestic innovation remains theoretically and empirically ambiguous. The objective of this study is to examine the impact of foreign direct investment inflows on innovation activity in ASEAN economies during the period 2000-2022, with particular attention to whether foreign investment complements or substitutes domestic research and development efforts. The study uses an unbalanced panel dataset covering ASEAN countries over the period 2000-2022. Innovation activity is measured by research and development expenditure as a percentage of GDP. Foreign direct investment inflows are measured as a percentage of GDP. The empirical analysis applies the system Generalized Method of Moments estimator, which is appropriate for dynamic panel data and allows the study to address endogeneity, unobserved country-specific effects, reverse causality, and the persistence of innovation activity. The results show that lagged innovation activity has a positive and statistically significant effect on current innovation, confirming the persistence of research and development processes. Foreign direct investment inflows have a negative and statistically significant effect on innovation activity, supporting the hypothesis that FDI may substitute for domestic R&D in ASEAN economies. At the same time, imports of machinery and technology, property rights, physical investment, human capital, scientific researchers, and income growth positively affect innovation activity. The findings suggest that attracting foreign investment alone is insufficient for strengthening innovation capacity. ASEAN countries need policies that improve absorptive capacity, domestic research systems, institutional quality, human capital, and linkages between foreign and local firms. Future studies should apply alternative innovation indicators, such as patents, high-technology exports, and innovation indexes, and should use firm-level data to examine heterogeneous FDI spillover effects across sectors and countries.

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Author Biography

Nguyen Hai Nam, HUTECH University

Faculty of Business Administration, HUTECH University, Ho Chi Minh

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