Inward FDI and local innovative performance. an empirical investigation on Italian provinces

Do knowledge externalities from FDI foster local innovative performance? Employing manufacturing data for the period 2001-2006 this paper investigates the impact of inward FDI on the generation of innovation. Adopting a Knowledge Production Function approach (KPF), we find that in the case of Italian provinces the presence of foreign investment is beneficial for the innovative performance of recipient economies. These results are robust to a number of checks adding new evidence to the literature on FDI impact. In terms of policy consideration, this implies that a structured policy for the attraction of external capital might channel external sources of knowledge to complement local capabilities.