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What Determines Technological Spillovers of Foreign Direct Investment: Evidence from China

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  • Galina Hale

    ()
    (Economic Growth Center, Yale University)

  • Cheryl Long

    ()
    (Colgate University)

Abstract

Using the World Bank survey of 1500 firms in five Chinese cities, we study whether the presence of foreign firms produces technology spillovers on domestic firms operating in the same city and industry. We find positive spillovers for more backward firms. We analyze the channels of such spillovers and find that the transfer of technology occurs through movement of high-skilled workers from FDI firms to domestic firms as well as through network externalities among high-skilled workers. Moreover, these two channels fully account for the spillover effects we find, which demonstrate the importance of well-functioning labor market in facilitating FDI spillovers. Insofar as our results can be generalized to other countries, they reconcile conflicting evidence found in other studies.

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Bibliographic Info

Paper provided by Economic Growth Center, Yale University in its series Working Papers with number 934.

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Length: 31 pages
Date of creation: Apr 2006
Date of revision:
Handle: RePEc:egc:wpaper:934

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Keywords: Foreign direct investment; technological spillovers; labor mobility; network externalities; China;

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References

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  1. Blomstrom, Magnus & Globerman, Steven & Kokko, Ari, 1999. "The determinants of host country spillovers from foreign direct investment: review and synthesis of the literature," Working Paper Series in Economics and Finance 502, Stockholm School of Economics.
  2. Glass, Amy Jocelyn & Saggi, Kamal, 2002. " Multinational Firms and Technology Transfer," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(4), pages 495-513, December.
  3. Lutz, Stefan H. & Talavera, Oleksandr, 2003. "Do Ukrainian firms benefit from FDI," ZEI Working Papers B 04-2003, ZEI - Center for European Integration Studies, University of Bonn.
  4. Djankov, Simeon & Hoekman, Bernard, 1999. "Foreign investment and productivity growth in Czech enterprises," Policy Research Working Paper Series 2115, The World Bank.
  5. Jonathan E. Haskel & Sonia C. Pereira & Matthew J. Slaughter, 2002. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," Working Papers 452, Queen Mary, University of London, School of Economics and Finance.
  6. Görg, Holger & Strobl, Eric, 2002. "Spillovers From Foreign Firms Through Worker Mobility: An Empirical Investigation," IZA Discussion Papers 591, Institute for the Study of Labor (IZA).
  7. Kokko, Ari & Tansini, Ruben & Zejan, Mario, 1994. "Productivity Spillovers from FDI in the Uruguayan Manufacturing Sector," Working Paper Series in Economics and Finance 2, Stockholm School of Economics.
  8. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
  9. Wolfgang Keller & Stephen R. Yeaple, 2003. "Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States," Working Papers 2003-06, Brown University, Department of Economics.
  10. Hallward-Driemeier, Mary & Wallsten, Scott & Lixin Colin Xu, 2003. "The investment climate and the firm : firm-level evidence from China," Policy Research Working Paper Series 3003, The World Bank.
  11. Vinish Kathuria, 2000. "Productivity spillovers from technology transfer to Indian manufacturing firms," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 343-369.
  12. Stephen R. Yeaple & Wolfgang Keller, 2003. "Multinational Enterprises, International Trade, and Productivity Growth," IMF Working Papers 03/248, International Monetary Fund.
  13. Wang, Jian-Ye & Blomstrom, Magnus, 1992. "Foreign investment and technology transfer : A simple model," European Economic Review, Elsevier, vol. 36(1), pages 137-155, January.
  14. Rodriguez-Clare, Andres, 1996. "Multinationals, Linkages, and Economic Development," American Economic Review, American Economic Association, vol. 86(4), pages 852-73, September.
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Cited by:
  1. Wang, Danny T. & Gu, Flora F. & Tse, David K. & Yim, Chi Kin (Bennett), 2013. "When does FDI matter? The roles of local institutions and ethnic origins of FDI," International Business Review, Elsevier, vol. 22(2), pages 450-465.
  2. Zhi Wang & Shang-Jin Wei, 2008. "The Chinese Export Bundles: Patterns, Puzzles and Possible Explanations," Working Papers id:1774, eSocialSciences.
  3. Natasha Agarwal & Chris Milner & Alejandro Riaño, 2013. "Credit Constraints and FDI Spillovers in China," CESifo Working Paper Series 4313, CESifo Group Munich.
  4. Elisa Galeotti, 2009. "Do Domestic Firms Benefit from Geographical Proximity with Foreign Investors? Evidence from the Privatization of the Czech Glass Industry," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 3(1), pages 026-047, March.
  5. Zhi Wang & Shang-Jin Wei, 2008. "The Chinese Export Bundles - Patterns, Puzzles and Possible Explanations," Macroeconomics Working Papers 22275, East Asian Bureau of Economic Research.
  6. MOTOHASHI Kazuyuki & YUAN Yuan, 2009. "Technology Spillovers from Multinationals to Local Firms: Evidence from Automobile and Electronics Firms in China," Discussion papers 09005, Research Institute of Economy, Trade and Industry (RIETI).
  7. Todo, Yasuyuki & Zhang, Weiying & Zhou, Li-An, 2009. "Knowledge spillovers from FDI in China: The role of educated labor in multinational enterprises," Journal of Asian Economics, Elsevier, vol. 20(6), pages 626-639, November.
  8. Abdullahi Ahmed & Enjiang Cheng & George Messinis, 2011. "The role of exports, FDI and imports in development: evidence from Sub-Saharan African countries," Applied Economics, Taylor & Francis Journals, vol. 43(26), pages 3719-3731.
  9. Natasha Agarwal & Chris Milner, . "FDI Spillovers in China – Connecting the Missing Link between Micro and Macro," Discussion Papers 11/20, University of Nottingham, GEP.
  10. Zhi Wang & Shang-Jin Wei, 2008. "What Accounts for the Rising Sophistication of China's Exports?," NBER Working Papers 13771, National Bureau of Economic Research, Inc.
  11. Qun Bao & Puyang Sun & Jiayu Yang & Li Su, . "Does High-tech Export Cause More Technology Spillover? Evidence from Contemporary China," Discussion Papers 10/06, University of Nottingham, GEP.
  12. Ramstetter, Eric D. & Ngoc, Phan Minh, 2013. "Productivity, ownership, and producer concentration in transition: Further evidence from Vietnamese manufacturing," Journal of Asian Economics, Elsevier, vol. 25(C), pages 28-42.

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