Some twins are not alike: FDI premia in the former Soviet states

Purpose The purpose of this paper is to estimate foreign direct investment (FDI) premia in the former Soviet states. Design/methodology/approach The authors follow an empirical approach. Using Orbis data for a sample of more than 3,000 companies, the authors characterize FDI involvement and FDI premia of firms from three distinctive groups of former Soviet states, designated upper-middle-income, lower-middle-income and high-income countries. This yields interesting within-group and between-group results on the effects of outward FDI (OFDI) and inward FDI (IFDI) on firm-level innovation. Findings The authors unveil new facts about innovation and FDI in the former Soviet states. FDI firms innovate more than non-FDI firms and OFDI firms innovate more than IFDI firms. The innovation effect of OFDI is the largest for firms from the lower-middle countries, followed by the high and upper-middle countries. The innovation effect of IFDI is the largest for firms from the lower-middle countries, followed by the upper-middle and high countries. FDI to and from Europe has the largest impact on innovation; this holds across country groups. Originality/value The paper contributes to the literature on FDI premia by: considering IFDI and OFDI in a unified empirical framework; dissecting IFDI and OFDI by location; measuring firm-level productivity in terms of innovation; and providing cross-country comparable evidence on both emerging and advanced economies. At the same time, the paper contributes to the literature on FDI from emerging economies by: taking a firm-level quantitative approach; focusing on a relatively unexplored set of countries; and providing comparable cross-country evidence on both emerging and advanced economies.