L.B.X.T Kleijn 10356495 Date of submission 23 March 2018 Supervisor – M. Mihalache Second reader - V. Scalera
The influence of Foreign Direct
Investment on innovation performance:
A human and social capital approach
MSc. Business Administration – International Management
Statement of originality
This document is written by Lise Kleijn, who declares to take full
responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and
that no sources other than those mentioned in the text and its references have
been used in creating it.
The Faculty of Economics and Business is responsible solely for the
supervision of completion of the work, not for the contents.
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Acknowledgements
Amsterdam, 23rd of March 2018 Dear reader,
By writing this thesis I will finish my Masters and thereby ending my time as a student at the university. Many believe this to be the best time of your life, and indeed it has been so far. Moving to Amsterdam at the beginning of my university years and exploring the city, making new friends along the way, going on exchange to Hong Kong and even successfully doing a board year at a study association here at the UvA. However simultaneously, it has also been one of the most difficult and challenging times as my father passed away. He was the one who always emphasized the importance of education. Encouraging me to attain the highest possible degree and above all, always supported me. Therefore I would like to dedicate this thesis to my father. The MSc. Business Administration and especially the International Management track has been something that I have always been interested in. I believe that this Master expresses my interests and me as an individual; a strong international (business) focus and looking beyond cultural borders. I hope that with the obtained knowledge I can make significant contributions to society.
Furthermore, I especially would like to express my gratitude to Mrs Mihalache, who has guided me during the course of writing this thesis. I am grateful for her flexibility and understanding when I was confronted with the passing away of two persons who were very close to me. I am thankful for her support and overall confidence in me completing this thesis, I could not have wished for a better supervisor.
Best, Lise Kleijn
List of figures and tables
Figure 1 Conceptual model
Figure 2 Conceptual model results
Figure 3 Conceptual model results: post-analysis-patent application
Table 1 Overview of cultural, human, physical and social capital
Table 2 Elaboration on network bonds in social capital
Table 3 Country sample selection
Table 4 Summary variables and data sources
Table 5 Descriptives of variables
Table 6 Correlation matrix
Table 7 Regression models
Table 8 Correlation matrix: post-analysis-patent application
Table 9 Regression models: post-analysis-patent application
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Abstract
The effects of inward foreign direct investments are widely discussed in former economic studies. Additional studies introduce the relationship if inward foreign direct investment can stimulate innovation performance in the host country. The increasing globalisation and international competitiveness results in a shift from an economic approach to a more social and behavioural approach. Where it became more acknowledged that human and social capital could play an important role when explaining economic development and innovation performance. However, extensive research on how these three topics relate to each other has not yet been done and should therefore receive more attention. Hence, this research’s objective is to better understand and fill the literature gap about the possible effects of inward foreign direct investment on innovation performance, while taken into account the human and social capital of the host country.
The conceptual framework as proposed in this research is tested through a research from 2010 till 2013 and includes a sample of 39 countries. The results in this thesis determined that there is a notable relation between foreign direct investment and innovation performance when moderated by social capital. Human capital on the other hand, proved not to be necessarily a driver for innovation performance in this relationship. Nonetheless, this research contributes to the current debate about the relationship between these topics and serves as a directive for future research.
Key words: foreign direct investment, human capital, innovation performance, Research & Development, social capital
Table of content
LIST OF FIGURES AND TABLES ... 4
ABSTRACT ... 5
1. INTRODUCTION ... 8
2. LITERATURE REVIEW ... 11
2.1FOREIGN DIRECT INVESTMENT MOTIVATION AND CHOICE ... 11
2.1.1 Cultural distance ... 12
2.1.2 Effects of foreign direct investment ... 13
2.1.3 Spillover effect ... 15
2.2FIRM INNOVATION PERFORMANCE ... 16
2.3HUMAN CAPITAL ... 18
2.3.1 Education & training ... 20
2.3.2 Health ... 22
2.4SOCIAL CAPITAL ... 24
2.5SHORT SUMMARY ... 25
3. HYPOTHESES AND CONCEPTUAL MODEL ... 27
3.1CONCEPTUAL MODEL ... 28
4. DATA AND METHODOLOGY ... 29
4.2SAMPLE SELECTION ... 29 4.3DATA COLLECTION ... 30 4.4VARIABLES ... 32 4.4.1 Independent variable ... 32 4.4.2 Dependent variable ... 33 4.4.3 Moderating variables ... 33 4.4.4 Control variables ... 34
4.4.5 Robustness test: patent application - PAT ... 36
4.5DESCRIPTIVES ... 37
4.5.1 Screening the data ... 37
4.5.2 Preliminary analysis ... 38
5. ANALYSIS ... 39
5.1CORRELATIONS ... 39
5.2HIERARCHICAL MULTIPLE REGRESSION ... 41
**SIGNIFICANT AT THE 0.01 LEVEL (2-TAILED) ... 43
TABLE 7. ... 43
5.3POST-ANALYSIS: ROBUSTNESS CHECK ... 45
**SIGNIFICANT AT THE 0.01 LEVEL (2-TAILED) ... 48
6. DISCUSSION ... 49
6.1DISCUSSION OF THE RESULTS ... 49
6.2LIMITATIONS AND FUTURE RESEARCH ... 51
6.3CONTRIBUTIONS TO THEORY ... 54
6.3MANAGERIAL IMPLICATIONS ... 55
7. CONCLUSION ... 55
8. BIBLIOGRAPHY ... 57
9. APPENDICES ... 61
APPENDIX 1:SOCIAL CAPITAL ... 61
APPENDIX 2:CONSTRUCTION OF THE SOCIAL CAPITAL INDEX ... 62
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APPENDIX 4:HISTOGRAM ... 63
APPENDIX 5:DESCRIPTIVES TO CHECK FOR NORMAL DISTRIBUTION ... 64
APPENDIX 6:DESCRIPTIVE STATISTICS FOR ALL VARIABLES ... 64
APPENDIX 7:VARIANCE INFLATION FACTORS ... 65
APPENDIX 8:P-PLOT ... 66
APPENDIX 9:SCATTERPLOT ... 66
APPENDIX 10:DESCRIPTIVES &HISTOGRAM ... 67
1. Introduction
In April 2017 an article in the Financial Times with the title ‘Emerging markets are set to lead globalisation’ was published. This article elaborated about the shift in terms of globalisation. Where Western countries are increasingly opposing globalisation through trade protectionism, slow trade growth and even tightened immigration policies, data and theoretical deduction actually show the opposite. Globalisation is still the norm nowadays with its engine moving from developed economies to emerging economies. The world today and emerging economies in particular, should embrace a new era of globalisation (Financial Times, 2017).
Shortly after the ending of World War II, international growth and trade increased significantly (Hirst, Thompson & Bromley, 2003). From there on globalization has been moving in a rapid pace with economic, political and social boundaries slowly disappearing (Dhreher, 2006). Technological evolvements can be considered one of the main powerful drivers behind globalization whereas time and distance became significantly reduced by it (Aubert, 2005; Levitt, 1993). It affects consumers and companies on such a large scale and in such a wide variety of aspects. To give an example; how normal has it become to Skype with your backpacking family member in Bali, while simultaneously ordering new shoes from Australia and sipping coffee from that American franchise that lets you choose between Brazilian or Ethiopian coffee beans?
With globalization came certain benefits for organisations; such as the enormous economies of scale in terms of distribution and production (Levitt, 1993). Knowledge and human capital became increasingly accessible as well as intensively mobile and trade barriers were replaced by trade agreements (Stiglitz, 2002; Hirst, Thompson & Bromley, 2003). This also resulted in the increase of foreign direct investment (FDI). It almost seems that the movement and expansion of globalisation only offers benefits. However, with globalization
9 arose one parallel development and thus the issue of international competitiveness (Levitt, 1993). Not only do companies nowadays have to compete in the national and regional markets, they now face a strong global competition, which is increasingly knowledge based (Dreher, 2006; Tribó & Fosfuri, 2008). Former scholars and theories have researched and acknowledged the importance of innovation as one of the main drivers for gaining and sustaining competitive advantage and a strong market position. Innovation is thus considered a crucial factor in the performance and survival of companies (Alegra & Chiva 2008; Aubert, 2005; Bertschek, 1995; Tribó & Fosfuri, 2008; Zahra & George, 2002). Therefore, it is coherent that economies should continuously emphasize on product and organisational innovative activities. The globalization of the economy can be used to their benefits if organisations correctly act on it. As mentioned above, a specific benefit that can be exploited from globalisation is the inward FDIs to the host country and their domestic firms.
Past theoretical debates have discussed the role of globalization, FDI and Multinational Enterprises (MNEs) on knowledge and innovation activities (Bertschek 1995; Cantwell 1994; Cheung & Lin, 2004; Dunning, 1998; Fu, 2008; Kinoshita, 2000). However, extensive research is missing on human and social capital of the host country that influence the implementation of the benefits FDI brings. Fu (2008) as well as Cheung and Lin (2004) have researched the effects of FDI on domestic innovation activities in China. They both concluded that there is a positive effect on regional innovation performance when there is a high amount of inward FDI. However, Fu (2008) as well as Cheung and Lin (2004) did not incorporated the influence of human capital on the domestic firms. Other scholars discussed the importance and relation of human capital on innovation performances without the influence of FDI (Everdingen & Waarts, 2003; Shane, 1993; Rhyne, Teagarden & Panhuyzen, 2002). Above all, the existing literature and research on these matters have not contributed or elaborated on the concept of a cross-country analysis of different economies. Therefore this
research will try to bridge the gap by empirically testing the relation between inward FDI in different economies and the innovation performance of countries, with the influence of human and social capital. Hence, this paper will try to answer the following research question:
To what extent does inward FDI affect the innovation performance of countries and is this influenced by the human and social capital of the host country?
A quantitative approach is used to perform this research and try to answer the above question, utilising secondary data from different institutions and research organisations. The focus of this study will rely on 39 different countries randomly selected over a time period from 2010 till 2013. For the purpose of this research different datasets from different sources are used; such as the World Bank, Human Development Reports, World Values Survey and the World Intellectual Property Organization. These databases will be used to facilitate an in depth knowledge about the statistics and expenditures of the countries.
This research will contribute to the existing literature in several ways. First, based on insights from previous literature (Everdingen & Waarts, 2003; Shane, 1993; Rhyne, Teagarden & Panhuyzen, 2002), it is a step towards a theoretical foundation of stimulating innovation performance when taking into account the potential of human and social capital. Second, the findings of this paper contribute to the broader development literature as well as management theories, by illustrating and conceptualizing the influence of human and social capital of the host country to improve innovation performance and thereby gain and sustain competitive advantage.
The remainder of this paper is structured as follows; in the next section a literature review and integrative framework will be discussed to elaborate and give a broader and more in-depth understanding of the concepts that are relevant to answer the research question. In the third section a conceptual framework will be presented where the hypotheses are constructed into an integrated model that is ought to be tested. The following section
11 describes the research design that is used. The fifth section will provide empirical evidence on the matter and will be followed by a discussion of the findings. Lastly, the final section will present possible limitations and implications followed by an overall conclusion.
2. Literature review
In this part of the research the relevant terminology that is applicable and necessary to understand for this research, will be discussed. First, there will be elaborated on the importance of FDI and the possible effects it is has on the host country. Secondly, innovation performance will be explained and how it will be used for the rendering of this paper. Finally this section will end with an extensive but concise part about the concept of human and social capital and the potential effects it has on the economic development and innovation performance of the country.
2.1 Foreign direct investment motivation and choice
Inward FDI has different forms in which it can enter the host country. For example; a joint venture, a Greenfield, mergers and acquisitions or by means of a wholly owned subsidiary (Brouthers & Hennart, 2007; Meyer et al, 2009). However, for the purpose of this paper there will not be a distinction made between different types, but rather to the gross net inward FDI to the host country.
The decision of firms to initiate FDI and location choice is first of al a result of a cost– benefit analysis (Benito & Gripsud, 1992). Where MNEs take there decisions from a transaction cost approach and analyse if their foreign investment will lead to cost minimization (taken into account labour cost, transport costs, tariff barriers, government
regulations et cetera). Whereas organizations are at an advantage when they possess country-specific knowledge and general international operations experience (Brouthers & Hennart, 2007; Meyer et al, 2009).
Secondly, it is argued that firms look at the cultural distance from the home to the host country (Hofstede, 2001). Where culture is regarded to as a set of perceived values and attitudes that are agreed upon by a group of people to guide the individuals on how to react to their environment. Research by Geert Hofstede (2001) elaborates on cultural distance as dimensions where countries score differently on (Table 1). This will shortly be described in the next paragraph because it is important to understand this concept, as it is coherent with the concept of social capital.
2.1.1 Cultural distance
In his book Culture’s consequences: comparing values, behaviours, institutions and organizations across nations Hofstede (2001) defines culture as follows: “The collective programming of the mind that distinguishes the members of one group or category of people from another”. This also includes values, as systems of values are a culture’s core element. Such social systems can only be established because human behaviour is predictable. Culture is often seen as societies (nations or ethnic groups), but can actually be applied to any human collective such as; an age group, an organization, a gender et cetera (subculture). Values is almost an equal interdisciplinary term, as systems can be defined as “A broad tendency to prefer certain states of affairs over others” (Hofstede, 2001:5).
The visible manifestation of culture is described by Hofstede (2001) according to symbols, heroes, rituals and values. Symbols are gestures; words and pictures that stand for complex and specific meanings, which can often only be recognized or in the right way interpreted by individuals that share the same culture. Heroes are persons (real or fake, alive
13 or dead) that have characteristics that are famous and serve as model for certain behaviour. For example; cultural cartoon heroes such as Batman or Sesame Street. Rituals are activities that are done by the collective but are however, not needed to achieve goals. Nonetheless, within a culture they are perceived socially essential and thus keeping the individual bound within the norms set by the collective. For example; the manner of greeting a person or a certain way of acting in social ceremonies.
Culture on the national level
As mentioned in the former paragraph, national culture is established through a system of societal norms consisting of value systems, which are shared by major groups of the respective society. These norms result to the development of institutions with specific structures and related actions for different systems (family, education, politics and legislation). As a consequence, the developments of institutions reinforce the societal norms in return. This means that it is very difficult to break the circle and thus such systems are difficult to change (Hofstede, 2001:11). It does not mean that institutions are incapable of change, however it does not always influence the existing societal norms. Changes are mostly triggered by external factors such as nature or human forces (trade, technology, climate change etcetera). Changes through external factors are not directed at the societal norms but rather at its origins. A more constructive way of changing a system is by achieving behavioural change (Hofstede, 2001:12).
2.1.2 Effects of foreign direct investment
According to Cantwell (1994) and Dunning (1998), FDI and MNE activities play an important role in how globalization influences the geographic dispersion of knowledge and innovation. From an economic perspective, cross-border investments may be the most important and most noticeable manifestation of globalization. FDI flows have grown over the
past decade at least twice as fast as trade has, with estimated flows of FDIs in 2017 exceeding over $1.52 trillion (United Nations Conference on Trade and Development, 2018). As shortly mentioned in the introduction, the increase of imports and inward FDI can have the effect of increasing competition in the domestic markets. Subsequently, it is important that domestic firms produce more efficiently and increase their innovative activities to sustain competitive advantage (Bertschek, 1995). Hereby technological knowledge can be considered as one of the main drivers of competitive advantage, as Kinoshita (2000) states that the accumulation of knowledge can be considered one of the main determinants in terms of the economic growth of a country.
Because of the beneficial effects that can be exploited from inward FDI to the host country and their domestic firms, policy makers in emerging economies put the attraction of FDI high on the national agenda. Hoping that the knowledge brought by MNEs will spill over to domestic firms in the form of new technologies, specific marketing techniques and management styles (Borensztein, Gregorio & Lee, 1998; Smarzynska Javorcik, 2004). FDI can be a powerful source to transfer knowledge and technology embodied in tangible assets as well as intangible assets such as human capital, which would not be transferred otherwise (Aubert, 2005; Audretsch & Feldman, 1996; Cheung & Lin, 2003; Kinoshita, 2000).
Fu (2008) summarizes the contribution of FDI to regional innovation in four ways. Firstly, by innovation or Research & Development expenditures generated by foreign firms (MNEs). Secondly, by competition effect; as domestic firms have to produce more efficiently as a result of more competitors in the domestic market. However, Smarzynska Javorcik
(2004) notes with appropriate criticism that competition is a two-edged sword. An increase of competition by foreign entrants most likely means that domestic firms lose market share and thereby productivity. Since the fixed costs are now spread over a smaller market share. Thirdly, by bringing advanced practices and experience in innovation management to the host
15 country. Lastly and mostly spoken of; through spillovers. Inward FDI can influence innovation in several spillover forms such as; reverse engineering, demonstration effect, knowledge transfer through the supply chain, skilled labour turnover/acquisition and imitation (Cheung & Lin, 2003, Fu, 2008, Görg & Greenway, 2004). These different spillover effects of FDI will be explained in the next paragraph.
2.1.3 Spillover effect
Two forms of spillover effect can be distinguished; vertical and horizontal spillovers. However, it is actually more common that spillovers from FDI are vertical than horizontal embedded (Smarzynska Javorcik, 2004). Vertical spillovers contain the knowledge transfer through the supply chain such as technological know-how through staff training and skilled labour turnover/acquisition (Cheung & Lin, 2004; Fu, 2008). Horizontal spillover contains the benefits of FDI spillover on competitors in the same industry by means of reverse engineering, informal and formal relations or partnerships, demonstration effect and imitation.
Skilled labour turnover/acquisition, one form of vertical spillover, is the adoption of new technology in the form of human capital. MNEs will invest in training their staff and this expresses in two spillover effects; indirect due to the fact that workers will transfer the gained knowledge when they move to or are recruited by a domestic firm or through a direct spillover to complementary workers (Cheung & Lin, 2004; Görg & Greenway, 2004;
Smarzynska Javorcik, 2004).
Demonstration effect, reverse engineering and imitation is in the theoretical literature (Cheung & Lin, 2004; Görg & Greenway, 2004; Smarzynska Javorcik, 2004) mostly spoken of on the transfer of technological knowledge from developed to emerging economies. These three spillover effects can be ranged under the same principle. Where domestic firms will research the process and product information to accomplish the same efficiency and or
benefits. This is also done to organisational and managerial innovation even though these are considered to be easier to imitate (Cheung & Lin, 2004; Smarzynska Javorcik, 2004). By doing this, domestic firms significantly shorten the trial-and-error process which saves time and is financially attractive. Another benefit for domestic firms is that it is most likely that the products and technologies brought by FDI are already been tested in other (foreign) markets and as a result the perceived risk of similar innovation directions is lower (Benito & Gripsud, 1992; Brouthers & Hennart, 2007; Meyer et al, 2009).
2.2 Firm innovation performance
As explained in the former paragraphs, it is widespread acknowledged and of growing importance that companies encourage and seek innovation for their organisation. This is necessary for organisations because of the strong competitive knowledge-based environment and thus to ensure and maintain their competitive advantage (Alegra & Chiva, 2008; Aubert, 2005; Bertschek, 1995; Hamel & Prahalad, 1990; Tribó & Fosfuri, 2008; Zahra & George, 2002). Therefore, it is not the question if a company should innovate but how to do it in the most optimal way (Prajogo & Ahmed, 2006).
Authors such as Cohen & Levinthal (1989) and Audretsch & Feldman (1996) have a more conservative explanation and interpretation of innovation, whereas they link the level or the success of innovation mostly or solely to the Research and Development (R&D) expenditures and activities of the firm with a focus on product innovation at the technological level. The authors concluded that investments in R&D have indeed a positive effect on innovation activities. The same findings were also presented by more recent research such as that of Prajogo & Ahmed (2006) and Klomp & Van Leeuwen (2001). However, they define innovation more than only formal R&D (the input stage of R&D) and broaden the definition by incorporating the output stage and process innovation.
17 According to Prajogo & Ahmed (2006) people and social practices are the core of organisational success in contrast to technology. This is emphasized by Fu (2008), who further explains the concept by stating that innovation is not simply a linear transformation with basic science and input at one end and commercialisation at the other. For this reason firms should include the organisational or process innovation in their level of success when measuring innovation performance. Thus drawing upon these literatures, a more complete definition of innovation performance would be to include the organisational or process innovation. Namely the capacity to implement and exploit gained knowledge into the organisation’s strategy and managing people towards innovation (Fu, 2008; Klomp & Van Leeuwen, 2001; Prajogo & Ahmed, 2006).
Successful innovation performance includes everything from high quality decision-making, management and motivation techniques, efficient production, R&D, long range planning and more. However, due to the size of this research and the available data it is not possible to incorporate such a broad term of innovation performance for the rendering of this research. Therefore, this study will draw upon the conceptualisation of innovation where innovation performance is determined by product innovation (‘hard’ factors’; R&D investments) (Fu, 2008; Prajogo & Ahmed, 2006). Hence, the following hypothesis for this research is constructed:
H1: Inward foreign direct investment increases innovation performance in the host country regardless of human or social capital.
2.3 Human capital
Traditional classic economic scholars solely had a strong focus on psychical capital stock in economic research when talking about economic growth and development of countries (Olaniyan & Okemakinde, 2008). However, over the years the importance of human capital is increasingly emphasized in the social and behavioural sciences and widely adopted by economists (Becker, 1994; Schultz, 1961). Economic wealth of a nation is therefore determined by physical and human capital stock. When developing a competitive advantage and sustainable strategy in the current global market, organisations should focus on leveraging the workforce as a competitive factor by investing in human capital. Thereby ensuring that employees are completely competent to work effectively and efficiently in a fast changing, complex environment (Lepak & Snell, 1999; Marimuthu, Arokiasamy & Ismail, 2009).
From a resource-based view, resources are valuable when they facilitate an organisation to implement strategies that improve effectiveness and efficiency, neutralize potential threats and are able to exploit market opportunities (Lepak & Snell, 1999). Moreover, resources are considered valuable when they are unique and difficult to imitate such as intangible resources. As mentioned in chapter 2.2, FDI can be a powerful source to transfer knowledge and technology embodied in intangible assets such as human capital that otherwise would not be transferred (Aubert, 2005; Audretsch & Feldman, 1996; Cheung & Lin, 2003; Kinoshita, 2000). This will form the basis for competitive advantage because they are considered socially complex and as such difficult to imitate. These competitive advantages will in return increase positive firm returns, increase productivity and achieve cost-effective firm performance (Hitt et al, 2001; Lepak & Snell, 1999; Marimuthu, Arokiasamy & Ismail, 2009). Therefore, the value of human capital is dependent upon the
19 potential it has to increase organisational competitive advantage or the core competencies of the organisation (Lepak & Snell, 1999).
Early adopters of the human capital theory such as Becker (1994) and Schultz (1961) state, that the definition of human capital has been defined as a key factor in enhancing an organisation’s employees and assets to aim at increasing the productivity and maintaining a competitive advantage. In general, human capital entails the self-investment people make that increases their economic productivity and results in future real income (Becker, 1994; Olaniyan & Okemakinde, 2008; Schultz, 1961). Human capital is characterized by training, education, and professional activities to enhance employee’s knowledge, abilities, skills, competencies, social assets and values. This will lead to increased employee satisfaction and employee performance, which inherently results in increased firm performance (Marimuthu, Arokiasamy & Ismail, 2009). More easily defined: “The knowledge, skills, competencies, and attributes embodied in individuals that facilitate the creation of personal, social and economic well-being” (OECD, 2001:18).
Different researches found additional impacts of human capital. Firstly, that human capital significantly influences and stimulates innovativeness, Research & Development expenditure and firm performance (Benhabib & Spiegel, 1994; Marimuthu, Arokiasamy & Ismail, 2009) and secondly that human capital can attract physical capital, which contributes to growth per capita income. Additionally, the results of Benhabib & Spiegel’s (1994) research indicate that poor countries fail to receive flows of physical capital because they possess relatively poor human capital and thus, human capital plays an important role in the attraction of physical capital flows and vice versa.
Accomplishing human capital is directly related to investment in expenditures on education, training and health. These cannot be simply defined as costs by investments that
will result in valuable returns that can be calculated (Becker, 1994; Marimuthu, Arokiasamy & Ismail, 2009; Schultz, 1961) (Table 1).
Cultural, Human, Physical, Social capital
Capital Characteristics Asset Definition Human Skills, knowledge, training,
education, state of health
Intangible “The knowledge, skills, competencies, and attributes embodied in individuals that facilitate the creation of personal, social and economic well-being” (Organization for Economic Co-Operation and Development or OECD, 2001:18)
Physical Financial, tools, buildings, stock, personnel, products, material, assets, resources
Tangible Physical capital is capital that is measurable in tangible assets. (Olaniyan & Okemakinde, 2008).
Social Network, trust, relationships, values, codes, collective goals, family pattern, social
involvement and activeness
Intangible “Social capital inheres in the structure of relations between actors and among actors. It is not lodged either in the actors themselves or in physical implements of production” (Coleman, 2000:98)
Cultural National culture, norms, values, language, symbols, rituals
Intangible “The collective programming of the mind that distinguishes the members of one group or category of people from another” (Hofstede, 2001:9)
Table 1.
2.3.1 Education & training
According to Becker (1994) and Schultz (1961) education is the most important investment in human capital. Human capital theory emphasizes the importance of formal education and that it is necessary to enhance the population’s productivity. In other words, an educated nation is a productive nation (Barro, 2001; Schultz, 1961; Olaniyan & Okemakinde, 2008). Becker’s (1994) book and complementary research as well, show that there is a substantial difference between incomes when there is a difference in education. There is a positive significant correlation noticeable when there is an increase in level of education and increase in income. Many different economic growth and development studies note the importance of education and human capital (Benhabib & Spiegel 1994; Barro, 2001; Fleisher & Zhao, 2009; Hitt et al, 2001; Marimuthu, Arokiasamy & Ismail, 2009). The majority of economists state that human
21 resources of a country ultimately are the factor that determine the pace and characteristics of the social and economic development, and not its financial capital or its resources in terms of materials. As according to Psacharopoulos & Woodhall (1997:102):
“Human resources constitute the ultimate basis of wealth of nations. Capital and natural resources are passive factors of production, human beings are the active agencies who accumulate capital, exploit natural resources, build social, economic and political organization and carry forward national development”
Studies of the World Bank (1993) show that improvement in education levels are a significant explanatory factor for economic growth in regards to countries such as Hong Kong, Korea, Singapore and Taiwan. It has been the enormous growth in East Asia that has given education and thus human capital their increasing popularity in economic growth and development. These countries have reached incremental rates of growth while making increased investments in education. A human capital model has been developed, where it is shown that education and therefore the creation of human capital was the direct result for the differences in labour productivity as well as the differences in overall technology levels that we observe in the world (Barro, 2001; Olaniyan & Okemakinde, 2008). This is in line with was stated in the past paragraph, that human capital drives innovativeness. Benhabib & Spiegel (1994) support this by their study, which states that educated workforce is better at creating, implementing and adopting new technologies and thus generating growth.
People gain knowledge through formal education (articulable) and on-the-job training (tacit), where people invest education in themselves and on-the-job training is provided by the firm (Hitt et al, 2001; Lepak & Snell, 1999; Mirowsky, 1998). Tacit knowledge is mostly defined by informal routines and in an organisation’s social context. However, it is partially embedded in individual skills and competencies and in collaborative working relations. This results in the fact that the majority of tacit knowledge is unique, difficult to imitate and therefore has more potential to create strategic value to the firm than articulable knowledge
(Hitt et al, 2001). However, Becker (1994) argues in his study that the total investment in on-the-job training is almost the same size of investment as in education. In conclusion, education can be seen in three key elements (Olaniyan & Okemakinde, 2008):
1) Education viewed as an investment in human capital
2) Education viewed as a critical input for innovativeness and Research & Development activities (Benhabib & Spiegel, 1994; Marimuthu, Arokiasamy & Ismail, 2009). Advocates of this education view show that there is a close correlation between product development and educational levels. For example; countries that are front-runners of technology are also the countries that have the most educated people. 3) Education generates positive externalities. In the next paragraph such an externality
will be discussed.
However Olaniyan & Okemakinde (2008) points out that a shortage of educated people might limit economic growth, while the paradox is that an excess of educated people may stimulate unemployment and thus can also limit economic growth and development.
2.3.2 Health
Health expenditure and stimulation is considered one component of human capital (Becker, 1994; Grossman, 2000; Schultz, 1961). Health is a key component of human capital because it means that employees have less sick days, there is population growth (which leads to more workforce) and the life expectancy rate increases or in short: the total time people can spend producing financial income and commodities. Moreover, health measures also enhance human resource qualities. For example; additional food and better shelter (Becker, 1994; Grossman, 2000; Mirowsky, 1998; Schultz, 1961). However as said in the past paragraph, it is also enhanced by the component education as an externality. Evidence from the paper of
23 Mirowsky (1998) and his structural model suggest that educational attainment supports better health and a healthy lifestyle. Whereas the concept of human capital through education improves a healthy lifestyle, since it stimulates active and effective agency of the people. An increase in a healthy lifestyle can be explained by the fact that education gives individuals the ability to be effective agents of their own life, because they seek more information. It improves a sense of personal control and encourages a healthy lifestyle because education teaches people to learn, cognitive development and characteristics of rational or flexible thinking. Findings in the paper of Mirowsky (1998) and Becker (1994) show that well-educated in comparison to low-well-educated people more often exercise, are less inclined to smoke, have less excessive alcohol use or being overweight. Mirowsky (1998) goes even further and explains the healthy lifestyle because of two other resources due to education: economic resources and social support.
As mentioned earlier, the human capital model suggests that a higher level of education leads to a higher expected income and thereby reducing potentially economic deprivation of the individual. Poverty has a negative influence on health because it increases impairment, disability, diseases and even death. Thus, economic resources influence health. Secondly, education and economic benefits increase the possibility of supportive relationships and networks. In return these relationships improve health and decrease mortality. Additionally it can also affect health because partners influence or encourage exercise and better smoking and drinking habits. Therefore it is expected that human capital will have influence on the relationship between foreign direct investment and innovation performance. Thus the following hypothesis is constructed:
H2: A high level of human capital will intensify the relationship between inward foreign direct investment and innovation performance of the host country.
2.4 Social capital
To broaden the understanding of human capital it is important to understand the concept of social capital as part of and its influence on human capital. As well as human capital, social capital has an intangible character. Human capital is considered value inside an individual that leads to an increase in economic productivity whereas social capital lies in the structure of relationships between and among actors (Coleman, 2000; Portes, 1998; Tsai & Ghoshal, 1998). For this social capital is even more intangible than human capital is, as it exists within the relation among actors and human capital embodies the skills and knowledge of a person. Social capital is more intertwined with Hofstede’s national culture (see chapter 2.1.1), as his dimensions explain the difference of countries by norms, values and other symbols. According to Tsai & Ghoshal (1998) social capital can be divided into three dimensions from the social structure perspective. Firstly, the structural dimension entails the social interaction. It encompasses the position of an actor in its social network or structure, which provides certain benefits. The actor can use its position in its network to get jobs, acquire information, certain resources or as a supportive role (in relation to a healthy lifestyle) as Mirowsky (1998) explains. Secondly, the relational dimension refers to characteristics that lie within these relationships such as trust and trustworthiness. When individuals act in a open social structure or network, it is more likely that norms will be violated and individuals will be less trusting of one another, which will lead to weakening the social capital (Adler & Kwon, 2002; Portes, 1998; Tsai & Ghoshal, 1998). Thirdly, the cognitive dimension is characterized by attributes such as shared values and norms that emphasize a shared understanding of collective goals and how to act a certain way in a social system. It can be considered ‘capital’ because investments in social capital can be expected to deliver future benefits. For example; investments in building external networks can result in increased access to information and power. Investments in internal networks can result in increased collective identity and
25 capacity to reach collective goals (Table 1). From a network perspective social capital can be divided into three categories: bonding, bridging and linking. For example; bonding being bonds between family members. Bridging are bonds between business associates and linking is characterized by relations that are unequal due to difference in hierarchy. For a better understanding see Table 2 & Appendix 1.
Network
Bond Strong ties Weak ties Bonding Horizontal Good friends or close family with
homogeneous characteristics such as social-economic status or religion.
Members with the same interest or social characters within volunteer work.
Bridging Horizontal Good friends or direct family with heterogeneous characteristics such as age, gender or ethnic background.
Physical capital is capital that is measurable in tangible assets.
Linking Vertical Close cooperation between colleagues with different level of power within a hierarchy.
Distant colleagues with different level of power within hierarchy but also bonds between for example civilians and public servants.
Table 2. Source: www.socialcapitalresources.com
In conclusion, former research on human capital and social capital show a twofold relationship that reinforce and influence each other and has a positive influence on innovation performance. Hence, the following hypothesis about the influence of social capital on the relation between inward foreign direct investment and innovation performance is proposed:
H3: A high level of social capital will intensify the relationship between inward foreign direct investment and innovation performance of the host country.
2.5 Short summary
To conclude all former discussed literature in this chapter, inward foreign direct investment seems like a driver for innovation activities of the host country (Alegra & Chiva 2008;
Aubert, 2005; Bertschek, 1995; Cheung & Lin, 2004; Fu, 2008; Tribó & Fosfuri, 2008; Zahra & George, 2002). Through increasing international and national competitiveness firms are forced to innovate to sustain their competitive advantage. Moreover, FDI can affect the innovative activities of an organization in multiple positive ways because FDI can be a powerful source to transfer knowledge and technology embodied in tangible assets as well as intangible assets such as human and social capital (Aubert, 2005; Audretsch & Feldman, 1996; Cheung & Lin, 2003; Kinoshita, 2000). This is in line with the overall widely accepted concept that organisations need to innovate to stay relevant and competitive (Bertschek, 1995). There are four different ways that FDI can have an effect on the regional innovation of a country 1) innovation or Research & Development expenditures that are brought to the host country by foreign MNEs, 2) competition effect; because foreign firms on the domestic market result in more competitors, 3) foreign firms do not only enhance the competition on the domestic market, but they also bring advanced practices and experience in innovation management, 4) spillovers; such as reverse engineering, demonstration effect, knowledge transfer to the supply chain, skilled labour turnover/acquisition and imitation (Borensztein, Gregorio & Lee, 1998; Cheung & Lin, 2003; Fu, 2008; Smarzynska Javorcik, 2004). Social as well as human capital, possibly plays a supporting role in strengthen employee’s output through training, (formal) education and a better state of health. Where a better state of the individual will in turn benefit the social capital of the individual, thus leading to a possible synergetic effect (Becker, 1994; Grossman, 2000; Hitt et al, 2001; Lepak & Snell, 1999; Mirowsky, 1998; Schultz, 1961). Therefore, this research strives to emphasize the importance of human and social capital as a facilitator to increase the effects of inward foreign direct investment on innovation performance.
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3. Hypotheses and conceptual model
In this section the hypotheses and conceptual model are summarized and described. The hypotheses in this study are formed to help provide an answer to the research question as introduced in the introduction: To what extent does inward FDI affect the innovation performance of countries and is this influenced by the human and social capital of the host country? The hypotheses were included in the literature considering it would provide a more structured and substantiated construction of how the hypotheses were deduced from the literature. All hypotheses formed are presented below for an overview and put in a conceptual model to form an integrated figure (Figure 1).
Ha: Inward foreign direct investment increases innovation performance in the host country regardless of human or social capital.
H2: A high level of human capital will intensify the relationship between inward foreign direct investment and innovation performance of the host country.
H3: A high level of social capital will intensify the relationship between inward foreign direct investment and innovation performance of the host country.
Hypothesis 1 was constructed to test whether inward FDI indeed increases the innovation performance of the host country. Inward FDI is already proven by former research (Bertschek 1995; Borensztein, Gregorio & Lee, 1998; Cantwell 1994; Cheung & Lin, 2004; Dunning, 1998; Fu, 2008; Kinoshita, 2000; Smarzynska Javorcik, 2004) to have a positive effect on innovation performance in the host country. Moreover, different researches (Benhabib & Spiegel, 1994; Marimuthu, Arokiasamy & Ismail, 2009; Olaniyan & Okemakinde, 2008, Schultz, 1961) have established the effects of human capital to be positively related to innovation performance regardless of other determinants. Therefore, Hypothesis 2 of the
moderating effect of human capital on inward foreign direct investment and innovation of the host country is expected to result plausible. Due to its intangible character social capital is not as commonly accepted as human capital is, as the investments of human capital are better measurable than those of social capital are. Nonetheless have existing literature (Coleman, 2000; Portes, 1998, Tsai & Ghoshal, 1998), underlined the importance that social capital can have on the individual and thus contribute to better performance of the individual and subsequently the organization as a whole. Testing Hypothesis 3 may lead to insights on the importance of enhancing social capital.
3.1 Conceptual model
These hypotheses lead to the conceptualization of the model as presented in Figure 1. Negative relationships are indicated with a ‘-‘ sign and positive relationships are indicated with a ‘+’ sign.
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4. Data and methodology
Where the chapter with the literature review provided mostly conceptual answers and served as the foundation for the constructed hypotheses and conceptual model in the prior section. This chapter discusses and elaborates on the data and methodology that are used for this research. First the research design will be explained. Next the data sample will be accounted for and which databases are used, followed by a description of the measurements for the different variables and lastly the descriptives will be provided.
4.1 Research design
For this research a quantitative approach has been used to empirically test the hypotheses formulated in the conceptual framework. Because this research involves the testing of a theoretical proposition, a deductive approach is used. To be more specific; an explanatory study type is being followed, because this type of study is the correct type for testing relationships between variables (Saunders, Lewis & Thornhill, 2016). With explanatory research the study faces limitations that are demonstrated in the variables. The researcher chooses the variables that are used in the conceptual model and this has as a limitation that other potential variables, which can also have an impact, are not taken into account (see chapter 6.2 for more elaboration on this subject). To conduct a quantitative approach it offers a significant advantage; usually quantitative methods present data that is often generalizable (Steckler et al., 1992).
4.2 Sample selection
For the purpose of this research a cross-country analysis has been the objective. Therefore the country sample exists of 39 randomly selected countries. There has been no distinction made
between developed or emerging economies. It includes countries that according to the “World Economic Situation and Prospects”1 reports consist of developed, emerging and the BRICS (Brazil, Russia, India, China and South Africa) countries. Moreover, it includes countries from every continent. Furthermore a time frame of four years has been taken from 2010 till 2013, taken into account that a longitudinal approach would produce more reliable results than cross-sectional would. The random selection of the countries, as well as the chosen time, frame was influenced by the availability and accessibility of the online databases. This influence is caused because different online databases are used, which not always provide complete data when cross-checking for the different variables. Table 3 is presented to give an overview of the country sample collection.
Country selection
Argentina India Romania Armenia Japan Russia Australia Jordan Singapore Belarus Kazakhstan Slovenia Brazil Korean Rep. South Africa Chile Malaysia Spain
China Mexico Sweden Colombia Morocco Thailand Egypt Netherlands Tunisia Estonia New Zealand Turkey Georgia Peru Ukraine Germany Philippines United States Hong Kong Poland Uzbekistan
Table 3.
4.3 Data collection
In chapter 3 ‘Conceptual Framework’ the different hypotheses were formulated in regards to inward FDI of 39 countries and innovation performance of domestic firms on the country
1 Reports of the United Nations from 2010 to 2013. The report is a joint product of the United Nations Department of Economic and Social
Affairs (UN/DESA), the United Nations Conference on Trade and Development (UNCTAD) and the five United Nations regional commissions (Economic Commission for Africa (ECA), Economic Commission for Europe (ECE), Economic Commission for Latin America and the Caribbean (ECLAC), Economic and Social Commission for Asia and the Pacific (ESCAP) and Economic and Social Commission for Western Asia (ESCWA)).
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level, influenced by human capital and social capital of the host country. For this research all data is obtained from online databases. This includes data from the World Bank Open Data Group2, United Nations Human Development Reports3 (UNDP), World Values Survey (WVS)4 and World Intellectual Property Organization (WIPO)5. All data collected from these respective databases were initially collected for their own research and is therefore characterized as secondary data.
Consequently, when using secondary data it is often more difficult to determine if there is a fit and validity of the potential data. Nevertheless, there are also advantages of using this type of secondary data. The primary advantage is that these are leading institutions and of magnitude in their respective fields, which results in high quality and of high relevance data. Secondly, these data are supported by own research; the countries themselves delivered the institution, or the data. Thirdly, because of the size and credentials of these data collecting institutions it can be assumed that these data is widely used by other research and thus enhances validity of the data. Lastly, the advantage of this data is that it is time saving. If this research would collect own, primary data it would be immensely time consuming and access to gain necessary data would be limited.
To test the hypotheses the used data from these databases include: net inward foreign direct investment, public expenditure on education, health expenditure, Research & Development expenditure, number of patent applications, human development index, Ease of Doing Business index, GDP annual growth and level of trust, network and values. Each of these data collected is used in a time series of four years (2010-2013).
2 The World Bank Group is an organisation that works in every major area of development. They provide a wide array of financial products
and technical assistance and they help countries share and apply innovative knowledge and solutions to the challenges they face.
3 The mission of the Human Development Report Office (HDRO) is to enhance the human development. The goal is to contribute towards the expansion of opportunities, choice and freedom. The office works towards this goal by promoting innovative new ideas, advocating practical policy changes, and constructively challenging policies and approaches that constrain human development. The office works with others to achieve change through writing and research, data analysis and presentation, support to national and regional analysis and outreach and advocacy work.
4The World Values Survey is a global network of social scientists studying changing values and their impact on social and political life. It is
led by an international team of scholars.
5 WIPO is the global forum for intellectual property services, policy, information and cooperation. They are a self-funding agency of
the United Nations with 191 member states.
4.4 Variables
In this paper there are five variables used. The dependent, independent, moderating and control variables. See Table 4 for a summary of the variables and sources. A more extensive description of the variables to have a better understanding will now follow.
4.4.1 Independent variable Foreign direct investment - FDI
In the statistical analysis and conceptual model there is one independent variable shown (FDI). This variable contains the net inward flow of foreign direct investment. All foreign direct investment is measured in American Dollar (US$). According to the Organisation for Economic Co-operation and Development (OECD)6 the definition of FDI measured is as follows: “Foreign direct investment refers to direct investment equity flows in the reporting economy. It is the sum of equity capital, reinvestment of earnings, and other capital. Direct investment is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy. Ownership of 10 per cent or more of the ordinary shares of voting stock is the criterion for determining the existence of a direct investment relationship”. Former research and literature have established a relation between inward FDI to the host country’s innovation performance (Bertschek 1995; Borensztein, Gregorio & Lee, 1998; Cantwell 1994; Cheung & Lin, 2004; Dunning, 1998; Fu, 2008; Kinoshita, 2000; Smarzynska Javorcik, 2004). Hence it is expected to have a positive influence on innovation performance.
6 OECD uses its wealth of information on a broad range of topics to help governments foster prosperity and fight poverty through economic
growth and financial stability. They help ensure the environmental implications of economic and social development is taken into account. OECD's work is based on continued monitoring of events in member countries as well as outside OECD area, and includes regular projections of short and medium-term economic developments. The OECD Secretariat collects and analyses data, after which committees discuss policy regarding this information, the Council makes decisions, and then governments implement recommendations. The organization has 35 members.
33 4.4.2 Dependent variable
Innovation performance - RDexp
In this paper one dependent variable is used, namely innovation performance (RDexp) on the country level. As stated in chapter 2.2 the measurement of innovation performance can be done according different factors such as process and product innovation. However due to the difficulty of operationalizing process innovation, this research will only measure innovation performance by ‘hard factors’ (Audretsch & Feldman, 1996; Fu, 2008; Levinthal, 1989; Prajogo & Ahmed, 2006). To analyse this variable correctly, the indicator Research & Development expenditure in percentage of GDP is used. The definition used by the World Bank for Research & Development expenditure is; “that it consists of current as well as capital expenses of public and private organizations. It are expenditures to facilitate creative work to increase knowledge on humans, culture, society and new applications. R&D consists of applied and basic research and experimental development”.
4.4.3 Moderating variables
Human capital & Social capital- HUCAP & SOCAP
For the purpose of this research two moderating variables are used, namely human capital (HUCAP) and social capital (SOCAP). In past studies and literature (Benhabib & Spiegel, 1994; Marimuthu, Arokiasamy & Ismail, 2009; Olaniyan & Okemakinde, 2008; Schultz, 1961) it is widely acknowledged that human capital has a positive influence on innovation performance. Because human capital is considered intangible and therefore more difficult to quantify, this research will use an index consisting of two different indicators to make it measurable. Human capital is constructed out of the indicator Health (Becker, 1994; Grossman, 2000; Mirowsky, 1998; Schultz, 1961) and Education (Becker, 1994; Benhabib & Spiegel, 1994; Olaniyan & Okemakinde, 2008; Schultz, 1961; World Bank, 1993) consisting
of the following data: the sum total of education expenditure in percentage of GDP and health expenditure in percentage of GDP.
Because of its intangible nature, SOCAP is slightly more difficult to operationalize. However, an attempt has been made by creating an index for this variable consisting of three factors which embody the three dimensions of social capital according to Coleman (2000), Portes (1998) and Tsai & Ghoshal (1998): trust, network and values (Appendix 1). For these three factors, data from surveys was used, where participants (N=1000-4000 depending on country; total N=63,577) where asked questions according a scale (Appendix 2). Trust was measured according the structural dimension and 6 different questions were asked the participants. Network was measured according the relational dimension by asking the participants 4 relatable questions. Values was measured by asking the participants how they thought about 15 different statements that give a direction of the norms and values of the individual. The scores on the different factors were an average of the 4 years measured (2010-2013) with a total of N=63,577 participants. These 3 factors combined are the foundation for the SOCAP index variable.
4.4.4 Control variables
Several control variables are used to clarify or assess the hypothesized relationships to explain possible alternative outcomes. The control variables used in this study are: GDP annual growth, human development and Ease of Doing Business.
GDP growth – GDP
The definition for GDP is followed according the database that provided the GDP growth data. The World Bank explains that a country’s economic development is measured by the changes in output volumes or in relative incomes of society. “GDP growth is the total of gross added value in the country’s economy by all country producers plus product taxes but minus
35 any subsidies that are not included in product value. The calculation is made by not incorporating deductions for depreciation of fabricated assets. GDP annual growth in percentage at market prices is based on constant local currencies”. For the purpose of this study aggregates are based on constant 2010 US$. As GDP growth is considered a valid indicator to measure economic development (Borensztein, Gregorio & Lee, 1998; Fleisher & Zhao, 2009; Olaniyan & Okemakinde, 2008), it is expected that the higher the annual GDP growth, the more inward foreign direct investment and thus innovation performance will occur.
Human Development Index – HDI
The Human Development Index (HDI) is an index that is developed by the United Nations Development Program (UNDP) for advancing human wellbeing. It indicates the human development of the individual that is not necessarily a result of increased economic wellbeing. It is about developing more freedom, a healthier life, knowledge, accessibility to resources, choices, opportunities et cetera for the individual. In short; not economic growth and development but the people and their capabilities should be the sole indicators for rightly measuring the development of a country. For this reason this control variable is added. The HDI index consist of three key dimensions: 1) a (long and) healthy life, 2) knowledge and 3) living standards. These three dimensions are based on sub indicators: life expectancy at birth, expected years of schooling, mean of schooling and the gross national income (GNI) per capita. The index reflects a score between 0 and 1, where scores >0.5 are considered low human development, between 0.5 and 0.79 are considered to have mediocre human development and a score above 0.8 is considered a country with high human development.
Ease of Doing Business – EDB
Each country has a different level of Ease of Doing Business (EDB). There are 10 different indicators used by the World Bank to construct a sum score on EDB. These are: starting a
business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The concept (World Bank) entails a score of 1 to 100, where a high score means that the political and regulatory environment of the host country is more friendly and conductive. Therefore, it is expected that a low score of EDB will affect the relationship of the hypotheses.
4.4.5 Robustness test: patent application - PAT
According to the WIPO, intellectual property has 4 subcategories that define intellectual property; patent applications, trademarks, industrial design and geographical indication). For this research only the category patent application is used. The total number of filed patents in the host country measures patent application. A patent is characterized as an exclusive right that is granted by an official institution for an invention. Patents are mostly a direct outcome of innovative activities and therefore in relation to the Research & Development activities of organisations. It is the total amount of patent application, which also includes patent applications that are not necessarily granted. See Table 4 for an overview of the variables used for the purpose of this research.
Summary variables and data sources
Variable Data ID Units Source
Control Control Independent Moderator Dependent
Ease of Doing Business GDP annual growth Net inward foreign direct investment Human capital R&D expenditure EDB GDP FDI HUCA P RDexp Scale (1-100) Percentage US% Percentage Percentage World Bank
Control Human development index HDI Scale (0-1) UNDP
Moderator Social capital index (trust,
network and values) SOCAP Scale (1-10) WVS (Dependent to control
for robustness) Patent application PAT Filed patents WIPO Table 4.
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4.5 Descriptives
4.5.1 Screening the data
Before starting the analysis it is important to check the data for errors. Because of the rather difficult construction and the enormous scale (N=63,577) of the social capital index, the data consequently underwent some screening and cleaning before using. First of all, the ‘trust’ and ‘network’ factor had a scale from -5 to 4. As the score -5 to -1 was not relevant for this research (e.g. ‘not applicable’; ‘missing’; ‘not asked in survey’; ‘not answered’) the scale has been recoded into 1 to 5 (Appendix 2) and above all reversed. Thereafter, to conform these scales to the scale of ‘values’ (which is measured in a scale from 1 to 10), all the data of trust and network has been multiplied by factor 2 to equalize to a scale of 1 to 10. The mean of these 3 factors combined give a score for the SOCAP index. Table 5 represents several descriptive statistics of the sample of 39 countries during the time frame 2010-2013. Running a first analysis shows no abnormalities; all values are within the possible minimum and maximum values. The table furthermore shows that there are no missing values, which is advantageous because none of the countries have to be excluded.
Descriptive Statistics
N Minimum Maximum Mean SD Skewness Kurtosis
EDB 156 38.74 90.41 68.6065 10.83403 -.189 .194 .384 .386
FDI 156 -8,51E+8 3,32E+11 3,733E+10 7,064E+10 2.815 .194 7.333 .386
GDP 156 -2.93 15.24 3.9666 2.97099 .396 .194 .602 .386 HDI 156 .58 .94 .7917 .09420 -.117 .194 -1.092 386 HUCAP 156 4.53 17.97 7.9830 2.74053 1.359 .194 2.533 .386 RDexp 156 .06 4.15 1.2493 .95292 1.045 194 .355 .386 SOCAP 156 4.17 6.55 6.0385 .38862 -2.813 .194 11.640 .386 N 156 Table 5.
