Central European Business Review X:X | DOI: 10.18267/j.cebr.403

Does Foreign Direct Investment Increase Business R&D Expenditures in Host Countries?

Dušan Steinhauser ORCID...1
1 Bratislava University of Economics and Business, Faculty of Commerce, Department of International Trade, Dolnozemská cesta 1, Bratislava, Slovakia. Email: dusan.steinhauser@euba.sk

During the current multiple crises periods, economies are trying to find their way to development. One possibility is investment in research and development (R&D). However, emerging economies often have limited resources, so they rely on stimulating R&D through FDI inflows. The question remains about the effectiveness of this path. To investigate this question methodologically, a panel regression analysis with fixed effects was applied. The presented research was inspired by the empirical finding that a correlation between FDI inflow and business expenditure on research and development (BERD) has not been proven in EU countries. However, the new 11 EU members, have shown that FDI inflows influence BERD only in manufacturing sector. To confirm Dunning's investment development path (IDP) theory, the impact of net outflow foreign direct investment (NOFDI) on BERD was examined. We confirmed the specific IDP of new EU states and found a limited positive relationship between NOFDI and EU27 BERD in manufacturing, but gross value-added had a greater effect on BERD.
Implications for Central European audience: The Central European region, many of which were centrally planned economies in the past and underwent a transformation process, is the narrow focus of the article. Moreover, Central European countries are currently seeking a successful and effective development path, bolstered by research and development expenditures. Naturally, the article also provides a regional overlap perspective, as many other states can draw inspiration from the new member states and their respective development paths. Keep in mind that the Central European region's post-communist economies often serve as illustrations of Dunning's development path theory in action.

Keywords: business expenditures on research and development; net outflow foreign direct investment; investment development path

Received: November 5, 2024; Revised: February 4, 2025; Accepted: February 23, 2025; Prepublished online: June 17, 2025 

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