Inward FDI spillovers and innovation capabilities in Chinese business: exploring the moderating role of local industrial externalities

It is generally believed foreign direct investment (FDI) has spillover effects which can affect the innovation capabilities of local firms in host countries. Comparatively little, however, is known about the contingent local contextual factors that influence how these FDI spillovers can be captured. Integrating the literature on FDI knowledge spillovers with that on inter- and intra-industrial externalities, we explore how local industrial agglomeration moderates the effect of FDI knowledge spillovers on innovation in the emerging market context of China. Empirical estimates, based on panel data of 1610 listed indigenous Chinese firms recorded between 2000 and 2010, indicate that such spillovers are more easily captured in industrially diverse settings. By contrast, industrial specialisation negatively moderates this relationship. Theoretical and practical implications are discussed.     

The effectiveness of international knowledge spillover channels

Using panel data from 16 Organization for Economic Cooperation and Development (OECD) countries for the period 1981–2000, we examine the significance of international knowledge spillovers through inward and outward foreign direct investment (FDI), intermediate goods imports, and a disembodied direct channel. Knowledge spillovers through the disembodied direct channel are approximated by using a measure of technological proximity and patent citations between countries. Using estimation models that reflect recent developments in non-stationary panel data econometrics, we show that international knowledge spillovers through inward FDI and the disembodied direct channel are significant and robust. In contrast, outward FDI and imports of intermediate goods are not conducive to international knowledge spillovers.     

ARE THERE PRODUCTIVITY SPILLOVERS FROM FOREIGN DIRECT INVESTMENT IN CHINA?

We review previous literature on productivity spillovers of foreign direct investment (FDI) in China and conduct our own analysis using a firm‐level data set from a World Bank survey. We find that the evidence of FDI spillovers on the productivity of Chinese domestic firms is mixed, with many positive results largely due to aggregation bias or failure to control for endogeneity of FDI. Attempting over 6000 specifications that take into account forward and backward linkages, we fail to find evidence of systematic positive productivity spillovers from FDI in China.     

Wage,foreign-owned firms,and productivity spillovers via labour turnover: a non-linear analysis based on Chinese firm-level data

Using firm-level panel data from Chinese manufacturing firms over the period 2004–2007, this article investigates the impact of the wage gap between local and foreign-owned firms on foreign direct investment (FDI) spillovers in terms of total factor productivity (TFP). We find a non-linear threshold effect that: a low-level wage gap threshold exists, below which FDI spillovers are significantly negative. This is because FDI spillovers via labour turnover are blocked due to the low wages of local firms, which jeopardizes the flow of skilled workers from foreign firms to local firms. In contrast, when the wage gap reaches a high-level threshold, local firms can get benefits from FDI spillovers. The reason is that high wages of local firms attract skilled employees to leave foreign firms, which yields a large magnitude of worker mobility from foreign firms to local firms. Our article provides evidence that labour turnover as the channel of FDI spillovers only works when the wage gap is beyond some threshold. Also, these thresholds vary across regions and firm ownerships.     

To innovate or to transfer?

FDI has been considered by many development economists as an important channel for transfer of technology to developing countries. It is suggested that modern, advanced technologies introduced by multinational firms can diffuse to domestic firms through spillovers. In this paper, we study innovation and technology transfer activities of domestic and foreign firms in Turkish manufacturing industries, and the impact of horizontal, vertical and labor spillovers on these activities. Our analysis shows that foreign firms are more innovative than their domestic counterparts, and transfer technology from abroad (mostly from their parent companies). Horizontal spillovers from foreign firms seem to be insignificant. The effects of foreign firms on technological activities of other firms in vertically related industries are ambiguous. High-tech suppliers tend to have a high rate of innovation when the share of foreign users is high, but the opposite is true for users: high-tech users supplied mainly by foreign firms tend to have a lower rate of innovation. Labor turnover is found to be the main channel of spillovers. Our findings reiterate the importance of tacitness of knowledge, and confirm that technology cannot easily be transferred through passive mechanisms.     

多元知识探寻与后发企业技术创新

当后发企业由追随向引领转型时，将致力于对全球化技术、基础科学等多种知识来源的积极探寻，以推进自身技术创新。基于专利及引文数据，分析海外技术知识与科学知识对后发企业技术创新的影响效应。实证研究发现：海外技术知识转移水平与后发企业创新呈U型关系；知识来源的地理多样性则正向作用于后发企业创新。另外，企业科学关联度对后发企业技术创新未起到显著促进作用。在后发转型背景下，明晰企业对多元知识的技术学习机制和效果，对企业创新追赶及其国际化具有重要指导意义。     

Knowledge spillovers,absorptive capacity and total factor productivity in China’s manufacturing firms

Applying the stochastic frontier framework, this study explores the diffusion and absorption of technological knowledge in China’s manufacturing firms, based on a panel of more than 10,000 local and foreign-invested firms over the period 1998–2001. Our empirical approach allows us to distinguish between technological progress (TP) and technical efficiency (TE) in analysing whether R&D, exports and the presence of foreign direct investment simultaneously enhance TP through knowledge spillovers in a single framework and whether different types of domestic absorptive capacity moderate external knowledge spillovers in relation to TE. The results show that there are positive inter-industry productivity spillovers from R&D and foreign presence, whereas evidence of intra-industry productivity spillovers from FDI to Chinese firms is less robust. We find evidence that absorptive capacity is one of the key determinants to quantitatively explain intra-industry differences in productivity of local Chinese firms. The findings have important policy implications.     

FDI spillovers in new EU member states

Using an unbalanced panel of firm‐level data in Bulgaria, Poland and Romania, we examine the impact of foreign firms on domestic firms’ productivity. In particular, we try to answer the following research questions: (1) Are there any spillover effects of foreign direct investments (FDI), and if so, are they positive or negative? (2) Are spillover effects more likely to occur within or across sectors? (3) Are the existence, the direction and the magnitude of spillovers conditioned by sector and firm‐specific characteristics? Our findings show that FDI spillovers exist both within and across sectors. The former arise when foreign firms operate in labour‐intensive sectors, while the latter occur when foreign firms operate in high‐tech sectors. Moreover, we find that domestic firm size conditions the exploitation of FDI spillovers even after controlling for absorptive capacity. We also detect a great deal of heterogeneity across countries consistent with the technology gap hypothesis.     

Origin of FDI and Intra‐Industry Domestic Spillovers: The Case of Greek and European FDI in Bulgaria

This paper uses firm‐level data to assess the horizontal impact of foreign firm ownership on domestic productivity in Bulgaria. We identify a theoretical tradeoff between technological distance (of domestic versus foreign firms) and internalization capacity (of spillovers) and examine the extent to which this is reflected in the impact on the domestic economy of different types and origins of FDI. Emphasis is placed upon the effects of Greek FDI, which is known to be of a distinctively “regional” character. We find that Greek FDI produces significantly larger positive spillovers, which appear more suitable for the Bulgarian context of transition and economic restructuring. We also unveil some notable “hysteresis” and “technology bias” effects for FDI spillovers of all origins, as well as some country‐specific ownership‐structure and threshold effects.     

The impact of foreign direct investment on innovation at domestic firms: Evidence from the deregulation of foreign investment in China

This paper studies the impact of foreign direct investment (FDI) on innovation by domestic firms in China. A difference-in-difference estimation strategy yields causal evidence by exploiting China's deregulation of FDI in 2002. Analysis of a matched firm–patent data set from 1998 to 2007 shows that both the quantity and quality of innovation by domestic firms benefited from the presence of FDI. Emphasizing the importance of knowledge spillover from FDI in similar technology domains, the authors examine the role of horizontal FDI and FDI in technologically close industries—those sharing similar technology domains. Findings show that the latter generates much more substantial positive spillover than the former. The paper also shows that knowledge spillover from FDI in similar technology domains is not driven by input–output linkages. In addition, the spillover effect is stronger in cities with higher human capital stock and firms with higher absorptive capacity.     

Spillovers from Foreign Direct Investment in Spanish Manufacturing Firms

This paper examines the effect of participation by foreign capital and the spillovers from a foreign presence on the technical progress of Spanish manufacturing firms. The results show that foreign direct investment (FDI) creates positive spillover effects for local firms, and when the presence of foreign capital and the absorptive capacity of spillovers from FDI are large, more technical progress ensues. Also, local companies in capital‐ and research and development (R&D)‐intensive industries experience larger positive FDI spillovers. For these reasons, government policies should aim to attract FDI, especially in the aforementioned industries.     

Technology transfers,foreign investment and productivity spillovers

This paper explores the relationship between foreign direct investment (FDI) and the productivity of host country domestic firms. We rely on a specially designed survey of over 4000 manufacturing firms in Vietnam, and separate out productivity gains along the supply chain (obtained through direct transfers of knowledge/technology between linked firms) from productivity effects through indirect FDI spillovers. In addition to identifying indirect vertical productivity spillovers from FDI, our results show that there are productivity gains associated with direct linkages between foreign-owned and domestic firms along the supply chain not captured by commonly used measures of spillovers. This includes evidence of productivity gains through forward linkages for domestic firms which receive inputs from foreign-owned firms.     

SOUTHERN INNOVATION AND REVERSE KNOWLEDGE SPILLOVERS: A DYNAMIC FDI MODEL*

We develop a general equilibrium model of endogenous innovation and foreign direct investment (FDI). In the benchmark model, Northern firms innovate with the help of localized spillovers, and a share of new products is transferred to Southern production via FDI. An increase in Southern imitation risk reduces this share. In the extended model, we permit higher‐cost Southern innovation, which yields inefficient specialization in both regions and reduces global growth. However, it generates a U‐shaped relationship between FDI and local imitation. We also allow for “reverse” spillovers in knowledge to Northern innovation, which partially restore global efficiency and growth.     

Foreign direct investment and technology spillovers: Evidence from panel data analysis of manufacturing firms in Zambia

The most pronounced reason for providing fiscal incentives to attract foreign direct investment (FDI) is that FDI is an effective conduit for technology transfer through technology spillovers to domestically owned firms in the host country. This study analyzes the nature and significance of productivity externalities of FDI to local firms, both in terms of intra-industry and inter-industry spillovers, using firm-level data from Zambia. The results show little evidence in support of intra-industry productivity spillovers from FDI on one hand, and significant inter-industry knowledge spillovers occurring through linkages. The net impact of FDI depends on the interaction between intra-industry and inter-industry productivity effects.     

Export Spillovers of FDI on China's Domestic Firms

This paper examines the horizontal and vertical export spillovers of foreign direct investment (FDI) on China's manufacturing domestic firms by using firm‐level census data over the period of 2000–03. Based on a Heckman two‐step procedure combining first differencing and instrumental variable regression techniques, it is found that FDI has had a positive impact on the export value of domestic firms mainly through backward technology spillovers and a positive impact on the export‐to‐sales ratio of domestic firms through horizontal export‐related information spillovers. After decomposing FDI by different market orientation and domestic firms by different ownership, the paper finds that the positive impact on domestic firms' export values is mainly from the nonexporting and the exporting foreign‐invested enterprises while the positive impact on domestic firms' export‐to‐sales ratios is mainly from the high‐exporting foreign‐invested enterprises. Both types of export spillovers are mainly diffused to domestic non‐state‐owned enterprises.     

Impact of firm heterogeneity on direct and spillover effects of FDI: Micro-evidence from ten transition countries

This paper presents a comparative study of the importance of direct technology transfer and spillovers through FDI on a set of 10 transition countries, using a common methodology and appropriate methods to account for selection and simultaneity correction. This paper considers by far the largest firm level dataset (more than 90,000 firms) used by any study on the spillover effects of FDI. The main novelty of the paper is the explicit control for various sources of firm heterogeneity when accounting for different effects of FDI on firm performance. This work shows that the heterogeneity of firms in terms of absorptive capacity, size, productivity and technology levels affect the results. Controlling for these variables leads to some interesting results, which contrast with the previous empirical work in the field. We find that horizontal spillovers have become increasingly important over the last decade, and they may even become more important than vertical spillovers. Positive horizontal spillovers are equally distributed across size classes of firms, while negative horizontal spillovers seem to be more likely to accrue to smaller firms. Moreover, positive horizontal spillovers seem more likely to be present in medium or high productivity firms with higher absorptive capacities, while negative horizontal spillovers are more likely to affect low to medium productivity firms. These findings suggest that both direct effects from foreign ownership as well as the spillovers from foreign firms substantially depend on the absorptive capacity and productivity level of individual firms. In addition, these results show that foreign presence may also affect smaller firms to a larger extent than larger firms, but this impact may be in either direction.     

外资溢出对中国私营企业生产率的异质性影响-来自普查数据的证据

本文利用第一次全国经济普查的企业微观数据研究中国私营企业生产率的异质性对吸收外资溢出的影响。我们发现:(1)企业层面外资份额及其控股与否对企业生产率的积极影响随生产率水平递增;(2)私营企业存在着吸收外资水平溢出和后向溢出的生产率"门槛"效应,即吸收能力的差别;(3)下游外资控股企业的溢出促进了上游大部分私营企业的生产率,而非外资控股的合资企业则对上游生产率较低的私营企业有负的净效应。私营企业面临的外资竞争格局正从各方面形成,而私营部门内部生产能力分化也日渐明显。     

Inventing together: exploring the nature of international knowledge spillovers in Latin America

This paper studies the nature, sources and determinants of international patenting activity in Latin American countries (LACs) and examines the extent to which LACs benefit from R&D that is performed in the G-5 countries (France, Germany, Japan, the United Kingdom, and the United States). By using patents and patent citations from the United States Patent and Trademark Office, we trace sectoral knowledge flows from G-5 countries to LACs. We study the impact of three channels of knowledge flows: foreign R&D, patent citation-related spillovers, and face-to-face contact spillovers. Our results, based on data for Argentina, Brazil, Chile, Colombia and Mexico, suggest that international knowledge spillovers from the G-5 countries were a significant determinant of inventive activity during the period 1988–2003. We find that the stock of ideas produced in the USA has a strong impact on the international patenting activity of these countries. Moreover, controlling for US-driven R&D effects, bilateral patent citations and face-to-face relationships between inventors are both important additional mechanisms of knowledge transmission. Some of our results suggest that the latter mechanism is more important than the former.     

Spatial effects of foreign direct investment in US states

Abstract This paper estimates the aggregate productivity effects of Marshallian externalities generated by foreign direct investment (FDI) in US states, controlling for Marshallian externalities and other spatial spillovers generated by domestic firms. A regional production function framework models externalities and other spatial spillovers explicitly as determinants of total factor productivity. We employ a system generalized method of moments (GMM) estimator to account for the potential endogeneity of FDI and the presence of spatial lags. Using data for US states from 1977–2003, the results indicate that FDI generates positive externalities, while externalities from domestic firms are negative.     

Foreign Direct Investment and the Incentives to Innovate and Imitate*

We propose a new channel of FDI spillovers on domestic firms, which operates through imitation of original products. Domestic heterogeneous firms may not introduce any new products, introduce a new product line (innovate), or develop a variety that is a close substitute to an existing product line (imitate). The presence of foreign firms generates incentives for imitation because they introduce original products that are vertically differentiated from domestic products. Using firm‐level panel data for China, we find that increased FDI presence in a given industry leads to more imitation, but not necessarily more innovation, by domestic firms.