Abstract:

Foreign direct investment (FDI) have important contributions to innovative capability of domestic
firms through channels such as reverse engineering, skilled labor turnovers, demonstration effects, and backward linkages. Therefore, FDI has been considered by many development economists as an important channel for transfer of technology to emerging markets. The share of developing countries, especially the emerging markets in global FDI inflow has increased substantially in the last two decades. Almost half of the FDI inflows for developing countries originate in BRICT countries. The share of BRICT countries in developing countries’ FDI flow has risen from 31% in 2001 to 46% in 2008, whereas their share increased from 6% to 17% in global FDI inflows for the same years. Whether it can promote technological progress for the host country depends on the sector specific and country specific characteristics, especially technological infrastructure and human capital. The aim of the study is to test the hypothesis that inward FDI brings knowledge spillovers, new technologies and products into the host country and promote domestic firms’ innovation capability for BRICT countries in the 2000s. The empirical evidence supports that FDI inflows generate spillover effects on domestic innovation capability and technological