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Foreign Direct Investment, Access to Finance, and Innovation Activity in Chinese Enterprises

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  • Sourafel Girma
  • Yundan Gong
  • Holger Görg

Abstract

A recent, comprehensive database is used to investigate the link between inward foreign direct investment (FDI) and innovation activity in China. The results of the analysis suggest that private and collectively owned firms with foreign capital participation and those with good access to domestic bank loans innovate more than other firms do. Among enterprises not owned by the state, inward FDI at the sectoral level is positively associated with domestic innovative activity only among firms that engage in their own research and development or that have good access to domestic finance. At the sector level the effect of inward FDI into technology transfer is distinguished from the effect on domestic credit opportunities. FDI affecting credit is of little significance for state-owned enterprises and is independent of their access to finance. In contrast, better access to credit is an important channel through which FDI affects the innovation of domestic private and collectively owned enterprises. Copyright The Author 2008. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / the world bank . All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

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Bibliographic Info

Article provided by World Bank Group in its journal The World Bank Economic Review.

Volume (Year): 22 (2008)
Issue (Month): 2 (June)
Pages: 367-382

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Handle: RePEc:oup:wbecrv:v:22:y:2008:i:2:p:367-382

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Cited by:
  1. Horst Raff & Joachim Wagner, 2013. "Foreign Ownership and the Extensive Margins of Exports: Evidence for Manufacturing Enterprises in Germany," CESifo Working Paper Series 4337, CESifo Group Munich.
  2. Megha Mukim, 2011. "Does agglomeration boost innovation? An econometric evaluation," ERSA conference papers ersa10p1356, European Regional Science Association.
  3. Horst Raff & Natalia Trofimenko, 2013. "World Market Access of Emerging-Market Firms: The Role of Foreign Ownership and Access to External Finance," CESifo Working Paper Series 4346, CESifo Group Munich.
  4. Ito, Banri & Yashiro, Naomitsu & Xu, Zhaoyuan & Chen, XiaoHong & Wakasugi, Ryuhei, 2012. "How do Chinese industries benefit from FDI spillovers?," China Economic Review, Elsevier, vol. 23(2), pages 342-356.
  5. Natasha Agarwal & Chris Milner & Alejandro Riaño, . "Credit Constraints and FDI Spillovers in China," Discussion Papers 11/21, University of Nottingham, GEP.

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