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Heterogeneous foreign direct investment and local innovation in Italian Provinces

Highlights•Inward FDI positively impact local innovation.•the positive role of FDI is stronger for some specific typologies of inward FDI, such as in “Science-based” activities and to a lesser extent in “Specialised supplier” activities.•Inward FDI also produce negative effects on local innovation, in particular in the case of “Scale-Intensive” sector.AbstractLocations all over the world compete to attract Foreign Direct Investment (FDI) in order to access knowledge, technology, and boost economic development. Although the literature shows a positive impact of FDI, little is known about (1) its effect on neighbouring regions and (2) the type of FDI generating the strongest learning effects. To fill this gap, we investigate the FDI-innovation relationship in Italian provinces. By adopting the Pavitt taxonomy of manufacturing sectors, we suggest that only specific categories of FDI benefit local economies, whilst other types may produce negative outcomes. The evidence on the spatial implications of FDI remains limited.

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