Abstract

This study examines the determinants and effects of R&D intensive FDIs. In specific, the

research explores how corruption affects the inflow of R&D intensive FDIs and how R&D

intensive FDIs influence the innovative capacity of the host economy. Grabbing hand theory

of corruption dictates that corruption should decrease the inflow of R&D intensive FDIs.

Furthermore, the Romer Model postulates that increase in R&D intensive FDIs should

increase the innovative capacity of the host economy. To estimate these relationships, we

conduct econometric analysis on 24 OECD countries with data ranging from 1996 to 2012

using two different models. We find that a one-unit improvement in corruption index

causes 0.01095% increase in R&D intensive FDIs as a percentage of total GDP in the leading

year. We find an insignificant relationship between R&D intensive FDIs and innovative

activity of the host economy in t + 5 years. Our results are important in two ways. First,

they highlight what strategies policy-maker can institute to attract higher volumes of R&D

intensive FDIs i.e. control the levels of corruption. Second, the host countries need to re- think the incentives provided by the R&D intensive FDIs. Traditional view that R&D

intensive FDIs will increase the innovative activity in the host-economy is not supported by

data.

Advisor

Son, Byunghwan

Second Advisor

Sirbu, Anca

Department

Business Economics; Political Science

Publication Date

2014

Degree Granted

Bachelor of Arts

Document Type

Senior Independent Study Thesis

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© Copyright 2014 Usman Shabbir