Working Paper Article Version 1 This version is not peer-reviewed

Inward Foreign Direct Investment Induced Technological Innovation in Sri Lanka? Empirical Evidence Using ARDL Approach

Version 1 : Received: 12 May 2021 / Approved: 20 May 2021 / Online: 20 May 2021 (11:04:28 CEST)

How to cite: Adikari, A.P.; Liu, H.; Marasinghe, M. Inward Foreign Direct Investment Induced Technological Innovation in Sri Lanka? Empirical Evidence Using ARDL Approach. Preprints 2021, 2021050482 Adikari, A.P.; Liu, H.; Marasinghe, M. Inward Foreign Direct Investment Induced Technological Innovation in Sri Lanka? Empirical Evidence Using ARDL Approach. Preprints 2021, 2021050482

Abstract

Fostering innovation is considered one of the key policy priorities in most governments' agendas in developing countries, and foreign direct investment (FDI) is considered a principal resource for financing sustainable development, corresponding to 17 sustainable development goals (SDGs). This study analyzes the extent to which inward FDI affects innovation (proxied with patent applications) in Sri Lanka using secondary data from 1990 to 2019. We used the Autoregressive Distributed Lag (ARDL) cointegration procedure to examine the long-run relationships between variables. As per the study results, the coefficient of inward FDI is a negative sign while the coefficients of per capita gross domestic product (GDP) and high technology exports (HEX) show positive signs 2.142 and 0.414, respectively, and statistically significant in the long run. It is demonstrated that per capita GDP and high technology exports are an important variable in explaining technological innovation, and inward FDI and education expenditure (EDU) did not contribute towards widening technological innovation in Sri Lanka. Shaping the future of FDI in Sri Lanka is essential to foster innovation capability.

Subject Areas

Foreign direct investment; technological innovation; ARDL approach

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