IDEAS home Printed from https://ideas.repec.org/a/wly/canjec/v56y2023i2p676-718.html
   My bibliography  Save this article

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

Author

Listed:
  • Yan Liu
  • Xuan Wang

Abstract

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. Les répercussions des investissements directs étrangers sur l'innovation des sociétés nationales : données probantes sur la déréglementation des investissements étrangers en Chine. Cet article étudie les répercussions des investissements directs étrangers sur l'innovation des sociétés nationales en Chine. Une stratégie d'estimation des doubles différences produit des données causales en exploitant la déréglementation des investissements directs étrangers en Chine de 2002. L'analyse d'un ensemble de données qui associent les sociétés et les brevets de 1998 à 2007 démontre qu'à la fois la quantité et la qualité de l'innovation des sociétés nationales ont tiré profit de la présente des investissements directs étrangers. Les auteurs examinent le rôle des investissements directs étrangers horizontaux et des investissements directs étrangers dans des secteurs technologiques proches, à savoir ceux qui partagent des domaines technologiques semblables, tout en soulignant l'importance de la diffusion de connaissances provenant des investissements directs étrangers vers ces domaines. Les constatations illustrent que les investissements directs étrangers génèrent une diffusion positive bien plus importante que les investissements directs étrangers horizontaux. Cet article démontre également que la diffusion de connaissances provenant des investissements directs étrangers vers des domaines technologiques semblables n'est pas stimulée par des liens intrants‐extrants. En outre, l'effet de diffusion est plus fort dans les villes où le stock de capital humain est supérieur et où les sociétés ont une meilleure capacité d'absorption.

Suggested Citation

  • Yan Liu & Xuan Wang, 2023. "The impact of foreign direct investment on innovation at domestic firms: Evidence from the deregulation of foreign investment in China," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(2), pages 676-718, May.
    • Handle: RePEc:wly:canjec:v:56:y:2023:i:2:p:676-718
    DOI: 10.1111/caje.12654
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/caje.12654
    Download Restriction: no
    File URL: https://libkey.io/10.1111/caje.12654?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Ana Maria Santacreu & Heting Zhu, 2018. "What Does China’s Rise in Patents Mean? A Look at Quality vs. Quantity," Economic Synopses, Federal Reserve Bank of St. Louis, issue 14, pages 1-2.
    2. Wang, Cassandra C. & Wu, Aiqi, 2016. "Geographical FDI knowledge spillover and innovation of indigenous firms in China," International Business Review, Elsevier, vol. 25(4), pages 895-906.
    3. Havranek, Tomas & Irsova, Zuzana, 2011. "Estimating vertical spillovers from FDI: Why results vary and what the true effect is," Journal of International Economics, Elsevier, vol. 85(2), pages 234-244.
    4. Reyes,Jose Daniel, 2017. "FDI spillovers and high-growth firms in developing countries," Policy Research Working Paper Series 8243, The World Bank.
    5. Yan Zhang & Haiyang Li & Yu Li & Li‐An Zhou, 2010. "FDI spillovers in an emerging market: the role of foreign firms' country origin diversity and domestic firms' absorptive capacity," Strategic Management Journal, Wiley Blackwell, vol. 31(9), pages 969-989, September.
    6. Zhang, Lin, 2017. "The knowledge spillover effects of FDI on the productivity and efficiency of research activities in China," China Economic Review, Elsevier, vol. 42(C), pages 1-14.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Francesca de Nicola & Balázs Muraközy & Shawn W. Tan, 2021. "Spillovers from high growth firms: evidence from Hungary," Small Business Economics, Springer, vol. 57(1), pages 127-150, June.
    2. Segundo Camino-Mogro & Natalia Bermúdez-Barrezueta & Mary Armijos, 2023. "Is FDI a potential tool for boosting firm’s performance? Firm level evidence from Ecuador," Journal of Evolutionary Economics, Springer, vol. 33(2), pages 341-391, April.
    3. Lishi Liu & Shuang Meng & Jiajie Yu, 2022. "Innovation from Spatial Spillovers of FDI and the Threshold Effect of Urbanization: Evidence from Chinese Cities," Sustainability, MDPI, vol. 14(10), pages 1-16, May.
    4. Duan, Yunlong & Liu, Shuling & Cheng, Hao & Chin, Tachia & Luo, Xuan, 2021. "The moderating effect of absorptive capacity on transnational knowledge spillover and the innovation quality of high-tech industries in host countries: Evidence from the Chinese manufacturing industry," International Journal of Production Economics, Elsevier, vol. 233(C).
    5. Rui Guo & Lutao Ning & Kaihua Chen, 2022. "How do human capital and R&D structure facilitate FDI knowledge spillovers to local firm innovation? a panel threshold approach," The Journal of Technology Transfer, Springer, vol. 47(6), pages 1921-1947, December.
    6. Ioannis Bournakis & Sotiris Papaioannou & Marina Papanastassiou, 2022. "Multinationals and domestic total factor productivity: Competition effects, knowledge spillovers and foreign ownership," The World Economy, Wiley Blackwell, vol. 45(12), pages 3715-3750, December.
    7. Moralles, Herick Fernando & Moreno, Rosina, 2020. "FDI productivity spillovers and absorptive capacity in Brazilian firms: A threshold regression analysis," International Review of Economics & Finance, Elsevier, vol. 70(C), pages 257-272.
    8. Wu, Jie & Zahoor, Nadia & Khan, Zaheer & Meyer, Martin, 2023. "The effects of inward FDI communities on the research and development intensity of emerging market locally domiciled firms: Partial foreign ownership as a contingency," Journal of Business Research, Elsevier, vol. 156(C).
    9. Sara L. McGaughey & Pascalis Raimondos & Lisbeth La Cour, 2018. "What is a Foreign Firm? Implications for Productivity Spillovers," CESifo Working Paper Series 7109, CESifo.
    10. Miroslav Šipikal & Milan Buček, 2018. "The Role of FDI in Regional Innovation and Its Influence on the Emergence of Knowledge Spillover Effects," Advances in Spatial Science, in: Jan Stejskal & Petr Hajek & Oto Hudec (ed.), Knowledge Spillovers in Regional Innovation Systems, pages 195-218, Springer.
    11. Yanyan Sun & Sha Fan, 2023. "Chinese Outward Foreign Direct Investment and Innovation in Host Countries: Evidence from Countries Along the Belt and Road," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 15(2), pages 234-253, May.
    12. Mengmeng Wang & Shufeng Simon Xiao & Sang Hyun Han, 2023. "Exploring the double-edged sword effect of outward FDI spillovers on domestic firms’ productivity in an emerging market," Asian Business & Management, Palgrave Macmillan, vol. 22(1), pages 275-299, February.
    13. de Freitas, Carlos Eduardo & Paes, Nelson Leitão, 2019. "The collapse of Brazilian Social Security: Macroeconomic impacts of the increase of the minimum age of PEC nº 287/2016 reform," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 39(1), July.
    14. AM.Priyangani Adikari & Haiyun Liu & MMSA. Marasinghe, 2021. "Inward Foreign Direct Investment-Induced Technological Innovation in Sri Lanka? Empirical Evidence Using ARDL Approach," Sustainability, MDPI, vol. 13(13), pages 1-16, June.
    15. Shihong Zeng & Ya Zhou, 2021. "Foreign Direct Investment’s Impact on China’s Economic Growth, Technological Innovation and Pollution," IJERPH, MDPI, vol. 18(6), pages 1-24, March.
    16. Bruno, Randolph Luca & Campos, Nauro F. & Estrin, Saul, 2018. "Taking stock of firm-level and country-level benefits from foreign direct investment," LSE Research Online Documents on Economics 87343, London School of Economics and Political Science, LSE Library.
    17. Chen, Yongmin & Jiang, Haiwei & Liang, Yousha & Pan, Shiyuan, 2022. "The impact of foreign direct investment on innovation: Evidence from patent filings and citations in China," Journal of Comparative Economics, Elsevier, vol. 50(4), pages 917-945.
    18. Jan Stejskal & Petr Hajek & Oto Hudec (ed.), 2018. "Knowledge Spillovers in Regional Innovation Systems," Advances in Spatial Science, Springer, number 978-3-319-67029-4, Fall.
    19. Michele Imbruno & Rosanna Pittiglio & Filippo Reganati, 2015. "FDI, Intermediate Inputs and Firm Performance: Theory and Evidence from Italy," Discussion Papers 2015-15, University of Nottingham, GEP.
    20. Dea Tusha & Jacob A. Jordaan, 2021. "Biased FDI spillovers in incomplete datasets: An empirical examination," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 582-600, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:canjec:v:56:y:2023:i:2:p:676-718. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1111/(ISSN)1540-5982 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.