Links Between Foreign Direct Investment and Innovation Activities in Estonia

  • Jaan MassoEmail author
  • Tõnu Roolaht
  • Urmas Varblane
Part of the Innovation, Technology, and Knowledge Management book series (ITKM, volume 15)


There is a growing literature focusing on analyzing the productivity gap between domestic and foreign firms with differences in innovation indicators. In this chapter, we analyze the relationship between inward and outward foreign direct investment (FDI) at either company or industry level and the innovation behavior of companies in Estonia. We used company-level data from three waves of the Community Innovation Surveys, which were combined with financial data from the Estonian Business Register and FDI data from the Balance of Payments statistics. For the analysis, we used propensity score matching. Our results show that the higher innovation output of foreign-owned companies vanished after controlling for a number of company characteristics, but there were significant differences in innovation inputs, such as the higher use of knowledge sourcing and the lower importance of various impeding factors. Both domestic and foreign-owned firms with outward investments are more innovative.


Foreign Direct Investment Propensity Score Match Domestic Firm Foreign Company Foreign Ownership 
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The article was partly written during the period when Jaan Masso was a visiting researcher at Eesti Pank (Bank of Estonia, the central bank of Estonia). We acknowledge the financial support given by the Ministry of Education and Research of the Republic of Estonia target financed project no. SF0180037s08 and Estonian Science Foundation grants no. 6853, 8311, and 7405. We are grateful for the comments made by the participants of seminars held Tallinn and Tartu, but also Jaanika Meriküll. We are also grateful to Eurostat for providing the Fourth Community Innovation Survey microdata to the University of Tartu; however, Eurostat had no responsibility for the results or conclusions of the paper. We are solely responsible for all errors and omissions.


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Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  1. 1.Faculty of Economics and Business AdministrationUniversity of TartuTartuEstonia

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