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How Do Chinese Industries Benefit from FDI Spillovers?

  • ITO Banri
  • YASHIRO Naomitsu
  • XU Zhaoyuan
  • CHEN Xiaohong
  • WAKASUGI Ryuhei

Recently, Foreign Invested Enterprises (FIEs) in China have increased their investment in not only production activity but also R&D activity. This paper examines the impact of spillovers from such activities on two types of innovations by Chinese domestic firms: Total Factor Productivity (TFP) and invention patent application, using comprehensive industry and province-level data. We evaluate such spillovers according to FIEs' ownership structure, the origin of foreign funds, and the type of their activity: R&D, and production. We find an interesting asymmetry between spillovers to TFP and patent application: while we do not find significant intra-industry spillovers from FIEs, which is in line with previous studies, we find robust inter-industries spillover on TFP. On the other hand, we find substantial intra-industry spillovers promoting invention patent application but no evidence of inter-industries spillovers. Furthermore, whereas spillovers from FIEs to Chinese firms' TFP stem from their production activities, the source of spillovers to invention patent application is mostly through their R&D activity. Our findings indicate a need for multi-dimensional evaluation on the role of FDI in developing countries.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 10026.

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Length: 34 pages
Date of creation: May 2010
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Handle: RePEc:eti:dpaper:10026
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