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

Author Info

  • 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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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;

Find related papers by JEL classification:

  • F2 - International Economics - - International Factor Movements and International Business
  • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
  • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
  • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
  • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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  1. Lutz, Stefan H. & Talavera, Oleksandr, 2003. "Do Ukrainian firms benefit from FDI," ZEI Working Papers B 04-2003, University of Bonn, ZEI - Center for European Integration Studies.
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  7. Holger Görg & Eric Strobl, 2005. "Spillovers from Foreign Firms through Worker Mobility: An Empirical Investigation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(4), pages 693-709, December.
  8. Glass, Amy Jocelyn & Saggi, Kamal, 2002. " Multinational Firms and Technology Transfer," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(4), pages 495-513, December.
  9. Jonathan E. Haskel & Sonia C. Pereira & Matthew J. Slaughter, 2002. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," NBER Working Papers 8724, National Bureau of Economic Research, Inc.
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Cited by:

  1. Gandenberger, Carsten, 2015. "Theoretical perspectives on the international transfer and diffusion of climate technologies," Working Papers "Sustainability and Innovation" S12/2015, Fraunhofer Institute for Systems and Innovation Research (ISI).
  2. 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.
  3. Didenko, Alexander & Egorova, Tatiana, 2014. "Innovations as factor of absorptive capacity of FDI spillovers across regions of Russian Federation," MPRA Paper 59346, University Library of Munich, Germany.
  4. Natasha Agarwal & Chris Milner & Alejandro Riaño, . "Credit Constraints and FDI Spillovers in China," Discussion Papers 11/21, University of Nottingham, GEP.
  5. Anwar, Sajid & Sun, Sizhong, 2014. "Heterogeneity and curvilinearity of FDI-related productivity spillovers in China's manufacturing sector," Economic Modelling, Elsevier, vol. 41(C), pages 23-32.
  6. Natasha Agarwal & Chris Milner, . "FDI Spillovers in China – Connecting the Missing Link between Micro and Macro," Discussion Papers 11/20, University of Nottingham, GEP.
  7. Zhi Wang & Shang-Jin Wei, 2008. "The Chinese Export Bundles: Patterns, Puzzles and Possible Explanations," Working Papers id:1774, eSocialSciences.
  8. 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.
  9. Seyoum, Mebratu & Wu, Renshui & Yang, Li, 2015. "Technology spillovers from Chinese outward direct investment: The case of Ethiopia," China Economic Review, Elsevier, vol. 33(C), pages 35-49.
  10. Zhi Wang & Shang-Jin Wei, 2010. "What Accounts for the Rising Sophistication of China's Exports?," NBER Chapters, in: China's Growing Role in World Trade, pages 63-104 National Bureau of Economic Research, Inc.
  11. Andrea Ascani & Luisa Gagliardi, 2015. "Inward FDI and local innovative performance. An empirical investigation on Italian provinces," Review of Regional Research- Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 35(1), pages 29-47, February.
  12. 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.
  13. 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).
  14. 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.
  15. 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.
  16. 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.
  17. 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.

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