This paper analyses the impact of internationalization on the innovation performance of 40 countries. Internationalization variables are represented by outward and inward foreign direct investment, and by imports and exports; innovation is proxied with triadic patent applications. We take account of the influence of absorptive capacity—in both a linear and non-linear form—in the relationship between internationalization and innovation. Our results suggest that outward FDI is positively associated with patenting. Countries with high absorptive capacity benefit more, though there are diminishing returns. We find there is a negative association between inward FDI and patenting in countries with low absorptive capacity where FDI may displace local infant activities and stun further development of related local knowledge. We find support for the view that the innovation performance of countries with low absorptive capacity benefits from imports as well as from exports.
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