Knowledge sourcing, geopolitics, and FDI : An empirical analysis on the US green and digital sectors

Abstract Research Summary This paper examines how foreign direct investment (FDI) shapes firms' sourcing of knowledge in the digital and green domains under rising geopolitical frictions. We assemble a firm–country dyadic panel (2013–2020) linking US patent backward citations to firms' FDI, enriched with bilateral geopolitical distance and host‐country geopolitical risk (GPR), and estimate a gravity model of knowledge flows. We find that while in green technologies both the presence and cumulative scale of FDI are robustly associated with higher local knowledge integration, in digital technologies FDI effects are weaker and emerge through innovative mergers and acquisitions. Geopolitical distance is systematically associated with lower learning payoffs from FDI, especially in green activities, while host‐country GPR tends to weaken green FDI returns but to interact positively in the digital domain. Managerial Summary This study shows that foreign direct investment (FDI) remains an important channel through which US firms tap foreign expertise, but its effectiveness depends on sector, entry mode, and geopolitics. In green technologies, FDI is consistently associated with greater absorption of host‐country knowledge, but these benefits are lower when host countries are geopolitically distant or politically riskier. In digital technologies, smaller or generic investments yield limited learning gains, whereas more targeted and innovation‐oriented investments, especially innovative acquisitions, are more effective. Unlike in green sectors, political risk in digital settings does not systematically undermine learning and may sometimes support the value of selected investments.