The Impact of Local Linkages, International Linkages, and Absorptive Capacity on Innovation for Foreign Firms Operating in an Emerging Economy

Abstract

This study analyzes the impact of local linkages, international linkages, and absorptive capacity on firm innovation for firms based in one emerging economy while operating in another emerging economy. Testing research hypotheses derived from the institutional and organizational learning perspectives on a sample of 102 Taiwanese manufacturing firms operating in China, we find that the impact of international linkages is greater than that of local linkages, while both local and international linkages have a positive impact on innovation. Further analysis confirms that absorptive capacity has a stronger moderating effect on the relationship between local linkages and innovation than it does on the relationship between international linkages and innovation.