The knowledge base in a country can be understood as an assemblage of knowledge available in a country. The variety of knowledge present in a country provides local economic agents with a larger set of combinable knowledge and facilitates the generation of new knowledge (Antonelli et al. 2020). For example, most activities require more than one type of knowledge base and varying degrees of different knowledge (Martin and Moodysson 2013). Therefore, products produced in a country depend substantially on the knowledge and capabilities available in the country (Hidalgo and Hausmann 2009). The knowledge base of a country becomes more interconnected as countries draw complex knowledge from diverse domains of expertise and geographic locations (Cantwell and Salmon 2018). Complex knowledge can be defined as knowledge configured in a structure, the development of which requires numerous interactions and interdependencies (Cantwell and Salmon 2018; Van Wijk et al. 2008). Similarly, the complexity of an economy is manifested in the wide range of knowledge and capabilities that are combined to make different products, and countries that amass a larger set of capabilities tend to produce products that are difficult to replicate (Hidalgo and Hausmann 2009). Knowledge creation activities in a location are influenced by both local and external knowledge flows (Ardito and Petruzzelli 2017; Bathelt et al. 2004; Rodriguez et al. 2017).

Scholars have discussed the characteristics and forms of knowledge from different perspectives that build upon each other. Among those, the most well-known distinction is possibly codified knowledge and tacit knowledge. The codified knowledge can be made explicit and transferred easily, whereas the tacit knowledge embodied in humans and organizations and is considered spatially sticky (Hausmann et al. 2014; Miller 2008). Tacit knowledge is built around interpersonal contact and embodied in individual firms and networks (Balland et al. 2018). However, it can also be argued that tacit knowledge and codified knowledge are not necessarily distinct categories, but are two distinct dimensions of knowledge (Brown and Duguid 2001; Tsoukas 2005). Lundvall and Johnson (1994) went beyond this binary discussion and promoted an alternative view of knowledge—the distinction between know-what, know-why, know-how, and know-who. In this distinction, know-what refers to knowledge about mere facts, know-why refers to knowledge about principles and laws in nature and society, know-how refers to skills and the capability of doing something, and know-who refers to knowledge about possible partners for cooperation and knowledge exchange (Hausmann et al. 2014; Lundvall and Johnson 1994).

Recently, another alternative conceptualization of knowledge has been introduced by making a distinction between three types of knowledge bases: analytical knowledge base, synthetic knowledge base, and symbolic knowledge base. An analytical knowledge base prevails where knowledge creation is mainly based on formal models, codified sciences, and rational processes using scientific knowledge, whereas a synthetic knowledge base prevails where knowledge creation occurs through combining new and existing knowledge to solve practical problems. The knowledge creation in the symbolic knowledge base emphasizes the importance of cultural production and is focused on aesthetic value and images rather than a physical production process (Asheim and Gertler 2006; Asheim and Coenen 2005; Martin and Moodysson 2013). This distinction considers the tacit codified dimension and context specificity of knowledge, as well as the interaction between actors in networks in different geographies.

Scholars also have different perspectives on knowledge generation. From the economic geography perspective, the focus is mainly on the interaction between local actors to understand the localized nature of knowledge creation, whereas the international business perspective connects knowledge creation to the interaction between actors across national borders (Bathelt and Li 2020). However, the creation of new knowledge is not necessarily limited to specific local knowledge pools, because actors need to develop trans-local, trans-regional, and trans-national connections at a global scale to create new knowledge (Bathelt and Cohendet 2014; Wang and Hu 2020; Yue 2022). It is important to understand how such interactions and interdependencies are made. Combining knowledge from distant geographic locations may result in a systemic increase in the complexity of the knowledge system of a country and enrich its knowledge base. Hidalgo and Hausmann (2009) developed measures of the complexity of a country’s economy. However, they note that this interpretation says nothing about the process whereby countries accumulate capabilities and characteristics of an economy that might affect them. It is possible to understand changes in a country’s productive structure by investigating how countries accumulate new capabilities and combine them with previously available capabilities to develop new products (Hidalgo and Hausmann 2009). Therefore, the development of the knowledge base of a nation is about its ability to generate, transfer, and apply both local and foreign knowledge.

Knowledge can be transferred through technology transfer as well as adopting new management and organizational practices, contributing to the improvement in technological, managerial, and organizational capabilities of firms (Mehreen et al. 2022; Pina Stranger et al. 2023; Scott-Kennel 2007). Knowledge can also be transferred through R&D collaborations and training. Firms’ involvement in innovation collaborations with various outside parties enriches their knowledge base and develops a better ability to assimilate and exploit external knowledge (Kostopoulos et al. 2011; Kang et al. 2021; Pereira et al. 2023). For example, firms set up R&D labs close to clusters where valuable knowledge is concentrated and have the competence to absorb and transfer the knowledge in their internal network as well as external networks (Castellani et al. 2013; Turkina and Van Assche 2018). Buyers often arrange various training programs as well as technical assistance with the production process and quality control (Narula and Marin 2003; Pereira et al. 2023; Wang and Hu 2020), given that the quality of products and services exported is decided by the communication between buyer and seller (Ding et al. 2021; Lecraw 1993). Cultural exchange between actors also facilitates the complex process of knowledge generation and transfer, because the same knowledge can be interpreted and used differently by people in different organizations in different places (Van Wijk et al. 2008). The process of knowledge transfer can also be simplified by intellectual property rights (IPRs) by providing an incentive to the inventors to contribute to the production of knowledge and economic growth of a nation. Stronger IPRs enhance knowledge and technology transfer (Ben Chou and Passerini 2009; Tung 1994) and lead to strategic interaction between countries depending on their levels of knowledge structure and IPR standards (Ben Chou and Passerini 2009). For example, sharing intellectual property and technological know-how is often necessary to deal with global challenges. For example, Erfani et al. (2021) points out the necessity of an IP waiver for COVID-19 vaccines and related goods to advance global health equity.

To sum up, knowledge transfer in local and global contexts may require different tools. However, FDI is known as an important tool to transfer knowledge across borders due to the rising cost and risks associated with other mechanisms. By being part of different networks, MNEs interact with actors in different local and international ecosystems and have access to knowledge available in these ecosystems (Li and Gao 2021; Yue 2022). MNEs have the unique ability to absorb and transfer knowledge on a global scale (Castellani et al. 2013).

Therefore, researchers attempt to elaborate our understanding of knowledge sourcing through FDI and the effect on the knowledge base of a country by arguing that FDI is a way to accumulate knowledge from diverse sources so as to increase knowledge complexity and contribute to the knowledge base of a country. Just as “the variety of inputs that go into the production of goods produced by a country affects that country’s overall productivity” (Hidalgo and Hausmann 2009), the variety of knowledge sourced by a country through direct and indirect FDI linkages contributes to the country’s knowledge base. Researchers aim to explore the context by modeling the global outward FDI network because attaining knowledge existing elsewhere requires decision and investment (Bathelt et al. 2004). This study should be seen as an attempt to empirically underpin the argument that FDI is instrumental to sourcing knowledge from host countries and that such knowledge contributes to the knowledge base in home countries.

Interaction across spaces enables a combination of knowledge from different locations to create new knowledge. Researchers take a network approach to provide a deeper understanding of knowledge and technology transfer through outward FDI connecting to the knowledge base in a country. The network approach views FDI as a link between domestic and foreign networks and as a strategic choice to seek advanced knowledge and technologies in host countries to enhance the knowledge base in home countries (Chen and Chen 1998). Through FDI, investors can tap into knowledge in host countries that may not exist elsewhere in their networks and can absorb the knowledge to contribute to the knowledge base in their home countries. Researchers theorize that investors can source knowledge, through direct and indirect FDI linkages, from host countries to enrich the knowledge base in home countries and the absorptive capacity of countries matters in knowledge sourcing through FDI. Researchers test the theory by modeling the global outward FDI network and investigating the association between a county’s centrality position in the global outward FDI network and its knowledge base. Researchers also investigate the moderating effect of absorptive capacity in the relationship.

Researchers have increasingly been using network analysis to understand different contexts, including the transfer of ideas, knowledge, technologies, and financial contagion (Ferrier et al. 2016; Goyal 2012; Jackson 2008; Kali and Reyes 2007; Sultana and Turkina 2020; Turkina and Van Assche 2018). By modeling a network of relationships and analyzing the structure of the network, researchers can have deeper insights into the direct and the indirect relationships between actors in a network and the structure of the network, as well as predict which structures are likely to emerge in a society (Goyal 2012; Jackson 2008). Understanding the linkages and structures of a network provides us with important insights into the relationships among actors in a network. A network can be of different forms and shapes, among which the core–periphery structure is well known. For example, “Large social networks tend to be organized in a core-periphery structure, in which high-status people are linked in a densely connected core, while the low-status people are atomized around the periphery of the network” (Easley and Kleinberg 2010). Researchers notice a similar trend in the global distribution of FDI (Bolívar et al. 2019; Sultana and Turkina 2020). Investors are constantly in search of complementary resources that will ensure the maximum return on their investment, which suggests the asymmetrical flow of FDI.

Investors try to establish operations close to the related and supporting industries, and such concentration of firms in a location facilitate the creation of global pipelines to transfer knowledge (Bathelt and Cohendet 2014). Similarly, the flow of knowledge may be geographically localized, and a key reason for geographically localized knowledge flows is the establishment of linkages between the knowledge-producing actors (Almeida and Phene 2004). Regardless of their country of origin, investors tend to seek developed countries to carry out FDI and access knowledge (Scott-Kennel 2007). Investors can develop competitive advantages by sourcing knowledge from foreign knowledge hotspots that offer differentiated streams of knowledge, so long as they can identify, transfer, and integrate the knowledge through their operations (Almeida and Phene 2004; Song and Shin 2008; Turkina and Van Assche 2018; Zahra and George 2002). Knowledge-seeking FDI is usually directed to countries that offer a relatively advanced environment to promote the advancement of different types of knowledge (Kedia et al. 2012). Therefore, the flow of outward FDI will be higher between the countries that have relatively advanced knowledge and technology, given that FDI is a major channel of knowledge and technology transfer. Investors from countries with a higher knowledge base are motivated to invest in other countries, because on the one hand, they have relatively little to learn in their own countries, and on the other hand, they are more likely to outsource knowledge from host countries that have a higher knowledge base relative to their home countries (Song and Shin 2008). Countries that are central in the global FDI network possess diverse and complex knowledge and are able to produce knowledge-intensive products.

Knowledge can be accumulated, transferred, and preserved when networks of individuals and organizations put that knowledge into productive use (Hausmann et al. 2014; Pina Stranger et al. 2023). By studying the network of relatedness between products, Hidalgo et al. (2007) find that most upscale products are located in a densely connected core of the network, which suggests the accumulation of knowledge in the core. Investors can access new knowledge, technology, and resources to complement or supplement their existing capabilities through FDI (Cantwell and Janne 1999; Kedia et al. 2012). While making foreign direct investments, investors usually look for complementary resources that will enable them to maintain competitiveness (Kedia et al. 2012). Since countries differ in their knowledge profile (Chung and Yeaple 2008), investors can successfully combine knowledge across country locations to generate competitive advantages that other firms will find difficult to replicate or match (Gupta and Govindarajan 2000; Zahra and George 2002). FDI enables investors to gain access to knowledge and technology as well as acquire expertise in different areas, including marketing and general management. Investors can not only exploit their ownership advantages but also access and develop ownership advantages that they did not possess prior through outward FDI (Ding et al. 2021; Hsu and Chen 2009; Lecraw 1993). Linkages between local and foreign firms are important mechanisms for transferring knowledge and technologies between firms, as well as for improving the technological, managerial, and organizational capabilities of firms (Scott-Kennel 2007). Investors can draw from diverse knowledge and technology available in host countries through outward FDI (Chung and Alcácer 2002; Almeida and Phene 2004).

MNEs are embedded in different networks (Ghoshal and Bartlett 1990), and the embeddedness in a network gives an actor access to resources of other actors in the network, resulting in superior power and status as well as the possession of superior knowledge (Bonacich 1987; Li and Gao 2021; Yue 2022). FDI can be seen as a strategic choice to seek advanced knowledge and technologies in host countries to enhance the knowledge base in home countries (Chen and Chen 1998). For instance, Ferrier et al. (2016) analyzed the effect of the trade network on technology transfer and found that in most cases, countries that are better connected to the trade network have higher technology intensities. Through outward FDI, investors can access the advanced knowledge and technology available in host countries that would otherwise have been costly and unavailable (Deng and Lu 2022; Keller 2004; Nelaeva and Nilssen 2022). Knowledge and technology transfer between investors and recipients occurs when they are exposed to one another’s products or production processes, marketing techniques, or receive technical assistance. For example, in a host country, investors from different countries often bring together knowledge and ideas from different perspectives, which facilitates further development of knowledge in a combination of the knowledge specific to investors (Lecraw 1993).

Based on the statement that societies can expand their knowledge base “by facilitating the interaction of individuals in increasingly complex webs of organizations and markets (Hausmann et al. 2014)”, it is possible to argue that forming FDI linkages is instrumental in sourcing knowledge from host countries and enriching the knowledge base in home countries. It can be argued that countries amass diverse knowledge through FDI and that countries that have more FDI linkages tend to possess more complex knowledge than the countries that have fewer FDI linkages. Therefore, countries that establish more outward FDI linkages will have a higher position in the global outward FDI network and higher knowledge bases.

We understand from the literature that investors can access knowledge and technologies in host countries through networks of relationships with local actors (Bathelt and Cohendet 2014; Cantwell and Janne 1999; Deng and Lu 2022; Kedia et al. 2012; Turkina and Van Assche 2018). However, making an outward FDI does not guarantee that investors will be able to access the advanced knowledge available in host countries or contribute to the knowledge base of a country. Knowledge is often defined as tacit, which is not easily transferrable, and codified, which is easily transferable. However, the distinction might not be so easy. For example, tacit knowledge may not necessarily remain embodied in people, but can spill over when people articulate their thoughts, experiences, and viewpoints through gestures or language (Martin 2012). Similarly, the interpretation of codified knowledge depends on the subjective understanding of the actors involved (Amesse and Cohendet 2001). The effectiveness of an actor’s external knowledge-sourcing strategies to build new knowledge depends on the actor’s internal knowledge (Grigoriou and Rothaermel 2017). Therefore, investors need to have the basic capacity to understand and absorb knowledge from external sources (Nelaeva and Nilssen 2022; Sultana and Turkina 2020). Such basic capacity is defined as absorptive capacity (Cohen and Levinthal 1990). Developing absorptive capacities is important because the incentive to accumulate depends, among other things, on how new capabilities complement existing capabilities to create new products and services (Hidalgo and Hausmann 2009; Hidalgo et al. 2007).

According to Cohen and Levinthal (1990), absorptive capacity is an actor’s ability to identify, assimilate, and exploit knowledge from their environment. The absorption of knowledge and technology from foreign sources depends on the presence of absorptive capacity (Amesse and Cohendet 2001; Bathelt and Cohendet 2014; Deng and Lu 2022). For example, the knowledge and technology available in host countries can be of a tacit nature and highly context-specific, which requires certain capabilities to be absorbed (Cohen and Levinthal 1989; Fritsch and Kauffeld-Monz 2010; Narula and Marin 2003). The existing capabilities of investors influence their motivation to source knowledge from host countries (Song and Shin 2008; Sultana and Turkina 2023). Recently, Deng and Lu (2022) found that absorptive capacity strengthens the positive relationship between transnational knowledge transfer and innovation. Therefore, whether a country will benefit from outward FDI depends on the activities undertaken in the country to enhance the absorptive capacity of investors. Following the literature, researchers use R&D expenditure to measure the absorptive capacity of a country (Sultana and Turkina 2020). R&D expenditure in a country drives technological change, innovation, and economic growth by enabling actors to both generate new information and absorb information from external sources (Cohen and Levinthal 1989; Sultana and Turkina 2020). The combined benefit of the network embeddedness and absorptive capacity for the knowledge base of a country will be stronger.