The impact of national technological capabilities on foreign direct investment inflows: an empirical analysis

Purpose This study revisits how host-country technological capabilities shape inward foreign direct investment. Motivated by mixed evidence in the literature, we distinguish innovation inputs from innovation outputs and assess their differential effects on FDI within the classic OLI, Internalization, and IPLC frameworks. Design/methodology/approach A cross-country panel and estimate models of inward FDI inflows were compiled including three technological variables – R&D expenditure (% of GDP), number of patent applications, and high-technology export share – alongside standard controls. Descriptive statistics indicate wide heterogeneity in technological capacity across countries. Econometric estimates focus on the sign, magnitude, and significance of technology coefficients and benchmark them against theoretical expectations. Findings Results show a negative and significant association between FDI inflows and both R&D expenditure and patent activity, consistent with competition/crowding and high-cost/appropriation-risk mechanisms in advanced innovation systems. By contrast, high-technology exports are strongly positive and highly significant, signaling absorptive capacity, value-chain integration, and economies of scale. The pattern supports an input → output transition: FDI is more responsive to commercialized technological capability than to research effort alone, aligning with modernized OLI, Internalization, and the mature-product stage in IPLC. Originality/value The paper provides a clean input–output decomposition of technological capability and shows why innovation outputs systematically attract FDI while inputs may deter it absent complementary ecosystems. By embedding results in OLI–Internalization–IPLC, the study reconciles prior contradictions and yields actionable policy guidance: convert R&D into exportable capabilities, strengthen human capital and digital/institutional infrastructure, and target quality FDI linked to technology commercialization.