Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: This paper asks whether there is evidence of higher innovation output from firms where there is more foreign activity in terms of foreign direct investments (FDI), trade and collaboration on innovation, or if proximity between innovators is more important. With a sample of about two-thirds of Swedish firms with at least 10 employees and by accounting for selectivity and simultaneity biases, sector specific effects and firm specific effects, we find robust evidence for import spill over. There is also support for international knowledge transfer to the local firm from foreign units indicating the importance of both inward and outward FDI. We only find some weak find association between proximity to local partners and innovation. The most important aspect of the local milieu on innovation is skilled labour.

Keywords: Innovation; knowledge spillovers; proximity; trade; FDI

JEL-codes: D21; D21; F23; F23; L21; L22; O31; O32

44 pages, First version: February 28, 2007. Revised: June 29, 2007.

Note: The title has been changes

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