Complementarity between internal knowledge creation and external knowledge sourcing in developing countries

In developing countries, innovation is to a large extent a matter of adoption of advanced technologies but also of conducting internal R&D to be able to better assimilate existing technologies. This paper, based on firm level data from 24 developing countries, examines the roles of internal R&D efforts (MAKE) and external technology sourcing (BUY) in fostering productivity in manufacturing firms. Is MAKE a substitute for BUY or are the two strategies complementary as evidenced in some developed countries? Our empirical investigation highlights the critical role of external technology acquisition in manufacturing industries in low-income countries and exhibits signs of complementarity only in middle-income countries.