EFFECTS OF ECONOMIC CLUSTERS, FDI AND R&D ON INNOVATION: DEVELOPING COUNTRIES IN EUROPEAN MONETARY UNION EXAMPLE

This study investigates the impact of five economic indicators -clusters, FDI, R&D, and GDP per capitaon innovation. Using a unique panel dataset obtained from eight upper/middle-income countries with similar innovation levels that are in and out of economic clusters from 2001-2014. Being in a cluster has static (countable) and dynamic (uncountable) effects. We demonstrated that from the dynamic effect variables GDP per capita, FDI, a dummy variable for being EMU member and R&D expenditure only FDI is significant. On the other hand, export numbers are correlated with innovation negatively by 1.3. The empirical support shows that the dynamic effects of clusters are not statistically significant on innovation, but static effects are. Therefore, clusters are useful for countries on trade but not innovation directly. In a nutshell, an upper middle-income country should increase trade for innovation spillover by moderation effect of being in economic unions.