In this paper we study the relationship between foreign firm ownership and innovation activities in a wide group of West European and Central and East European countries.Based on a dataset including more than 100,000 firms covered by the 2014 edition of the Community Innovation Survey, we examine the role of home- and host country effects in firms’ decisions to introduce various forms of innovation.In addition, we identify a group of foreign-owned firms that specialize in exporting and interpret them as participants of hierarchic global value chains organized by multinational enterprises.We show that while foreign direct investment, especially from Germany, is positively associated with innovation, the opposite effect is observed in the case of hierarchic global value chains’ participants.The negative impact of within-multinationals global value chains on innovation is more pronounced in the affiliates located in the Central and East European countries.
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