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Abstract
Globalization brings opportunities and pressures for domestic corporations in emerging markets to innovate and enhance their aggressive position. Using information on firms in 27 transition economies, the authors test for the effects of globalization through the impact of increased opposition and overseas direct investment on domestic firms’ efforts to innovate (increase their capability) by means of upgrading their technology, improving the quality of their product or service, or obtaining certification. The authors show that the supply chain of multinational corporations and international alternate are important channels for domestic firms’ innovation.