Spillover effects of foreign direct investment: Innovation and absorptive capacity in Chicago

Authors: Hao Huang*, Illinois Institute of Technology
Topics: Economic Geography, Business Geography, United States
Keywords: FDI, Innovation, Knowledge Spillover, Chicago
Session Type: Virtual Paper
Day: 4/9/2021
Start / End Time: 3:05 PM / 4:20 PM
Room: Virtual 5
Presentation File: No File Uploaded


According to the 2018 IBM Global Location Trends report, the Chicago metropolitan area has led the U.S. in FDI for six years and is ranked in the top 5 cities in the world. As a hub of international business activity, Chicago is home to more than 1800 foreign companies with more than $100 billion foreign direct investment. However, its rankings on innovations fluctuate and fell out of the top 20 cities in the world for certain years, which does not match with its FDI level. This mismatch implies that underlying factors constrain positive spillover effects of FDI on innovation and absorptive capacity in Chicago. This research provides an interpretation of the relationship between innovation activity and FDI within the Chicago metropolitan area according to both geographical spillovers and relational spillovers. This research analyzes the geographic distribution of innovation and FDI, examines socioeconomic, institutional, and cultural factors affecting the spillover effects of FDI on innovation and absorptive capacity in Chicago, identify underlying factors limiting positive spillover effects, and provide policy implications on both FDI and innovation activities. FDI, patents data, and Small Business Innovation Research program data are used to measure FDI and innovation activities.

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