When Knowledge Travels: How Investment and Trade Drive Export-Oriented Entrepreneurship

What is it about?

This study explores how foreign direct investment (FDI) and international trade shape the emergence of export-oriented new ventures, highlighting the dual role of entrepreneurship as both a recipient and source of knowledge spillovers. Drawing on the knowledge spillover theory of entrepreneurship, the authors propose that international economic activities—like cross-border investments and trade exchanges—transfer valuable knowledge that fuels export-oriented start-ups, which in turn generate further innovation and knowledge diffusion in the economy. Using macro-level data from 34 countries (2002–2005), the study shows that the links between FDI, trade, and export-oriented new ventures differ by income level. In high-income countries, entrepreneurs more effectively absorb and apply knowledge from global investment and trade ties. In developing economies, institutional and infrastructural barriers constrain these benefits. The study also finds that a higher share of export-oriented start-ups fuels further new business creation, reinforcing entrepreneurship’s role in economic dynamism. For policymakers, these findings highlight the importance of fostering international engagement as a mechanism for innovation and entrepreneurship. Encouraging FDI inflows, expanding trade opportunities, and strengthening knowledge-sharing systems can help nations, especially developing ones, convert global connections into sustainable entrepreneurial growth.

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Photo by Nathan Cima on Unsplash

Photo by Nathan Cima on Unsplash

Why is it important?

This research is unique in showing that FDI and international trade not only provide knowledge spillovers that spark export-oriented entrepreneurship but also benefit from these ventures’ own spillover effects. By distinguishing patterns across different income levels, the study provides nuanced insights into how globalization’s benefits are distributed and internalized. The study is timely in an era where global economic interdependence and innovation diffusion are critical to competitiveness. As countries seek to recover and grow through entrepreneurship, this work offers a roadmap for leveraging investment, trade, and knowledge flows to stimulate sustainable, export-driven development.