Modeling the building blocks of country-level absorptive capacity: Comparing developed and emergent economies

Abstract

Several studies analyzed the importance of absorptive capacity (AC) to achieve economic development. However, to the best of our knowledge, no study compares the building blocks (BBs) of AC between developed and emergent economies. This paper aims to identify and analyze the impact of the BBs on AC under distinct levels of development (i.e., developed vs. emerging economies) using systematic literature review (SLR) and econometrics. Specifically, both linear and nonlinear analyses were employed. Our findings show that BBs in developed and emergent regions are different. For both groups, R&D, FDI (foreign direct investment), infrastructure, and HDI (human development index) variables are BBs of AC. For developed economies, BBs also contemplate secondary education enrollments, the higher education index, and the percentage of GDP spent on higher education. Moreover, the thresholds of BBs also differ between developed and emergent economies. This identification of BBs and possible AC thresholds is valuable, as it provides information to set goals and strategies before a foreign investment attraction policy. Thus, the results facilitate the development of more suitable strategies to enhance positive productivity spillovers and avoid negative spillovers whenever possible. These results show that policymakers cannot employ the same policies for the development of developed and emerging countries.