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Can You Teach Old Dragons New Tricks? FDI and Innovation Activity in Chinese State-Owned Enterprises

  • Girma, Sourafel

    ()

    (University of Nottingham)

  • Gong, Yundan

    ()

    (Aston University)

  • Görg, Holger

    ()

    (Kiel Institute for the World Economy)

We investigate whether inward FDI, either at the firm or industry level, has any impact on product innovation by Chinese State owned enterprises (SOEs). We use a comprehensive firm level panel data set of Chinese SOEs covering the period 1999 to 2003. Our results show that foreign capital participation is associated with higher innovative activity. Inward FDI in the sector has a negative effect on innovative activity in SOEs. However, there is a positive effect of FDI on SOEs that export, invest in human capital or R&D, or have prior innovation experience. We also find that SOEs with internal R&D activity and human capital development are successful innovators. Hence, our results suggest that rather than relying on sector level inward FDI to improve domestic innovative activity, it is important to get the firm-level fundamentals right.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2267.

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Length: 30 pages
Date of creation: Aug 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2267
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  1. Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and Innovation: An Inverted U Relationship," NBER Working Papers 9269, National Bureau of Economic Research, Inc.
  2. 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.
  3. Beata Javorcik & Mariana Spatareanu, 2006. "To Share or Not To Share: Does Local Participation Matter for Spillovers from Foreign Direct Investment?," Working Papers Rutgers University, Newark 2006-001, Department of Economics, Rutgers University, Newark.
  4. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
  5. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  6. Gary Jefferson & Bai Huamao & Guan Xiaojing & Yu Xiaoyun, 2006. "R&D Performance in Chinese industry," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(4-5), pages 345-366.
  7. Gorg, Holger & Strobl, Eric, 2001. "Multinational Companies and Productivity Spillovers: A Meta-analysis," Economic Journal, Royal Economic Society, vol. 111(475), pages F723-39, November.
  8. Sourafel Girma, 2003. "Absorptive capacity and productivity spillovers From FDI: a threshold regression analysis," European Economy Group Working Papers 25, European Economy Group.
  9. Newey, Whitney K., 1987. "Efficient estimation of limited dependent variable models with endogenous explanatory variables," Journal of Econometrics, Elsevier, vol. 36(3), pages 231-250, November.
  10. Albert G. Z. Hu & Gary H. Jefferson & Qian Jinchang, 2005. "R&D and Technology Transfer: Firm-Level Evidence from Chinese Industry," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 780-786, November.
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