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Foreign direct investment and regional innovation: Evidence from China

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  • Haiwei Jiang
  • Yousha Liang
  • Shiyuan Pan

Abstract

This paper studies the impact of foreign direct investment (FDI) on regional innovation, which is measured by patent applications and patent citations, based on city‐level data in China from 1995 to 2015. Using an instrumental variable approach, this paper demonstrates that FDI not only promotes the quantity of regional innovation, but also improves the quality of regional innovation in China. The findings are robust to various specifications of the empirical model and measurements. In addition, we highlight the channel of improving local absorptive capacity and market competition through which FDI exerts positive influence on regional innovation, and show that FDI acts as a substitute for local financial development to raise regional innovation.

Suggested Citation

  • Haiwei Jiang & Yousha Liang & Shiyuan Pan, 2022. "Foreign direct investment and regional innovation: Evidence from China," The World Economy, Wiley Blackwell, vol. 45(6), pages 1876-1909, June.
    • Handle: RePEc:bla:worlde:v:45:y:2022:i:6:p:1876-1909
    DOI: 10.1111/twec.13205
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