Disentangling the Innovation - Internalization Process Through a Structural Equation Model

Innovation virtuously impacts on the degree of international growth, which in turn positively influences innovation activities and then firms�™ performance (Filipescu et al., 2009). Many authors have tried to identify and explain the relationship between these two phenomena at firm level. Only recently, few empirical studies investigate them at a more aggregate level (see e.g. Mariotti et al., 2008). Moreover the literature focuses only on one direction of causality, while scant attention has been paid to inspect empirically innovation and internationalization together (Kafouros et al., 2008; Filippetti et al., 2009; Frenz and Ietto-Gillies, 2007). This paper provides an empirical analysis of the mutual relationship of these two phenomena, taking into account various features of the regions themselves. The empirical study is conducted on data concerning 20 Italian regions covering the period 2000-2008. To better understand the complex relationship between internationalization and innovation, we refer to the Structural Equation Models (SEM). These are multivariate regression type models, in which response variables could in turn act as dependent and predictor within a system of equations, and all variables are assumed to influence one-another reciprocally, either directly or through other variables as intermediaries (Bollen, 1989; McAdam et al., 2010). Through the SEM the relationships are expressed by a set of parameters which explain the magnitude of the effect (direct or indirect) between independent (either observed or latent) and dependent variables. Indeed, internationalization and innovation could act as both dependent and predictor which measurement could be difficult then suggesting the use of latent variables, and where the system of indicators is complex enough to lead at a model specified through two-way relations intrinsically connected. Using SEM approach we are able to specify flexible models dealing with non-standard relations stylized along panel data structure, in which spatial and temporal dimensions do matter

Air Connectivity and Foreign Direct Investments The economic effects of the introduction of new routes

By integrating the theoretical perspective of international business, economic geography and transportation science, we develop a novel framework to investigate the relationship between the localization of foreign direct investments (FDI) and air connectivity. In particular the key research question for this study is whether and in which ways the spatial network structure offered by the global airline system contributes to the development of both outward and inward FDI. Due to the widespread diffusion of multinationals, air travel is often required as a mean to engage face-to-face contacts at various levels within the organization, by the board of directors, managers, entrepreneurs and staff. The introduction of a new route, by reducing transport costs, should increase the likelihood of FDI exchange between the regions newly connected. Several studies have already analyzed the linkage between air traffic and various urban or regional characteristics, among which its degree of internationalization, and have unanimously demonstrated that the geography of FDI is related to the desire of large multinational companies to easily access the main international airports. However, literature traditionally focused on larger multinational companies located in global cities. To the best of our knowledge, no study has yet considered the effect of air travel on FDI by SMEs in secondary regions. We aim to test whether the geography of FDI between Italy and Europe is related to the desire of overseas companies to directly access international airports. This paper employs an event study methodology to determine the impact of new routes on the generation of both inward and outward FDI considering both SMEs and large companies. In particular, we built an original database covering the period 1997-2010 where for each FDI between Italy and Europe we collected information about the locations of both the overseas company and the newly created subsidiaries at a municipality level. That enables us to estimate the impact of a new route to the FDI subsequently generated between the catchment areas of the connected airports. We account for the existence of a possible endogeneity bias by considering several control variables.