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Foreign Direct Investment, Absorptive Capacity and Regional Innovation Capabilities: Evidence from China


  • Xiaolan Fu


Innovation has widely been regarded as one of the main drivers of economic growth in the knowledge economy. This paper investigates the impact of foreign direct investment (FDI) on the development of regional innovation capabilities using a panel data set from China. It finds that FDI has a significant positive impact on the overall regional innovation capacity. FDI intensity is also positively associated with innovation efficiency in the host region. The strength of this positive effect depends, however, on the availability of the absorptive capacity and the presence of innovation-complementary assets in the host region. The increased regional innovation and technological capabilities have contributed further to regional economic growth in China's coastal regions but not in the inland regions. It concludes that the type and quality of FDI inflows and the strength of local absorptive capacity and complementary assets in the host regions are crucial for FDI to serve as a driver of knowledge-based development. Policy implications are discussed.

Suggested Citation

  • Xiaolan Fu, 2008. "Foreign Direct Investment, Absorptive Capacity and Regional Innovation Capabilities: Evidence from China," Oxford Development Studies, Taylor & Francis Journals, vol. 36(1), pages 89-110.
  • Handle: RePEc:taf:oxdevs:v:36:y:2008:i:1:p:89-110
    DOI: 10.1080/13600810701848193

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    References listed on IDEAS

    1. Alan Hughes, 2003. "Knowledge Transfer, Entrepreneurship and Economic Growth: Some Reflections and Implications for Policy in the Netherlands," Working Papers wp273, Centre for Business Research, University of Cambridge.
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