INNOVATION AS A MEDIATOR IN THE RELATIONSHIP BETWEEN INWARD AND OUTWARD FOREIGN DIRECT INVESTMENT: A CONCEPTUAL MODEL PROPOSAL

Abstract

Dunning, widely regarded as the father of international business, proposed the Investment Development Path, which posits that the growth of inward foreign direct investment fosters an increase in outward foreign direct investment relative to per capita gross domestic product. Due to its international prevalence, the investment promotion path causes the investment agencies of countries to prioritise and encourage inward foreign direct investment. Considering the motivations of foreign direct investment, such as market-seeking, efficiency-seeking, strategic asset-seeking and natural resource-seeking, it has been observed that companies prioritise enriching the home country by enriching their companies rather than enriching the host country. Foreign direct investments are strategic instruments that add value to both the company owners and the host country. For this reason, it is stated that inward foreign direct investment is valuable as long as it contributes to the innovation of the country in which it invests, rather than being an investment that consumes the host country's market, human resources, strategic assets or natural resources. The most valuable contribution of innovation is envisaged as increasing outward foreign direct investment as in developed countries. It is planned to explain the relationship between inward foreign direct investment and outward foreign direct investment through innovation instead of gross domestic product per capita, which is not a cause but an effect. Our study is analysed with secondary data from 61 countries in 6 continents Inward foreign direct investment and outward foreign direct investment datasets are obtained from Organisation for Economic Co-operation and Development and innovation data are obtained from World Intellectual Property Organization. The study suggests that policy makers in countries aiming for sustainable development can maximise the benefits of inward foreign direct investment by improving innovation.