FDI clustering, innovation and economic development

This paper analyzes the impact of the clustering of FDI on local economic development in terms of process innovation, productivity growth and structural transformation. Very little research has been conducted on the role of FDI clustering in the development of process innovation. In this research, a crucial factor of FDI clustering which fosters `input of innovation´ contributes to output of innovation in terms of the introduction of a new method of production, supply network and renewal of industrial structure. The empirical result of paper suggests that FDI clustering, with interaction between foreign invested enterprises (FIEs) and domestic firms, enhances local economy in the sense of productivity growth, innovation and specialisation.