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Foreign Direct Investment, Access to Finance, and Innovation Activity in Chinese Enterprises

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  • Sourafel Girma
  • Yundan Gong
  • Holger Gorg

Abstract

This paper investigates the link between inward FDI and innovation activity in China, using a very comprehensive and recent firm level database. We pay particular attention to the impact of domestic access to finance. Our results show that firms with foreign capital participation or those with good access to domestic bank loans innovate more than others do. We also find that inward FDI at the sectoral level is positively associated with domestic innovative activity only if firms engage in own R&D or if they have good access to domestic finance. However, access to finance only plays a role for private or collectively owned firms, less so for state-owned enterprises. Furthermore, we distinguish the effect of sector level inward FDI into technology transfer and FDI affecting domestic credit opportunities and find that the latter is of very little significance for SOEs and is also independent of their access to finance. By contrast, it is an important channel through which FDI affects the innovation of domestic private and collectively owned enterprises.

Suggested Citation

  • Sourafel Girma & Yundan Gong & Holger Gorg, "undated". "Foreign Direct Investment, Access to Finance, and Innovation Activity in Chinese Enterprises," Discussion Papers 07/44, University of Nottingham, GEP.
  • Handle: RePEc:not:notgep:07/44
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    References listed on IDEAS

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    Cited by:

    1. Claudiu Albulescu & Adrian Ionescu, 2017. "The long-run impact of monetary policy uncertainty and banking stability on inward FDI in EU countries," Working Papers hal-01503950, HAL.
    2. Sourafel Girma & Yundan Gong & Holger Gˆrg & Zhihong Yu, 2009. "Can Production Subsidies Explain China's Export Performance? Evidence from Firm-level Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(4), pages 863-891, December.
    3. Yuping Deng & Helian Xu, 2015. "International Direct Investment and Transboundary Pollution: An Empirical Analysis of Complex Networks," Sustainability, MDPI, Open Access Journal, vol. 7(4), pages 1-25, April.
    4. Cumming, Douglas & Rui, Oliver & Wu, Yiping, 2016. "Political instability, access to private debt, and innovation investment in China," Emerging Markets Review, Elsevier, vol. 29(C), pages 68-81.
    5. Ursula Fritsch & Holger Görg, 2015. "Outsourcing, Importing and Innovation: Evidence from Firm-level Data for Emerging Economies," Review of International Economics, Wiley Blackwell, vol. 23(4), pages 687-714, September.
    6. Fritsch, Ursula & Görg, Holger, 2013. "Outsourcing, offshoring and innovation: Evidence from firmlevel data for emerging economies," Kiel Working Papers 1861, Kiel Institute for the World Economy (IfW).
    7. Falk, 2015. "The Relationship Between FDI Through Backward Linkages and Technological Innovations of Local Firms: Evidence for Emerging Economies," Eastern European Economics, Taylor & Francis Journals, vol. 53(5), pages 424-438, September.
    8. Basant, Rakesh, 2017. "Exploring Linkages between Innovation and public policy- challenges and Opportunities," IIMA Working Papers WP 2017-11-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    9. repec:gam:jsusta:v:9:y:2017:i:9:p:1574-:d:110915 is not listed on IDEAS
    10. Tsai, Yingyi & Lin, Justin Yifu & Kurekova, Lucia, 2009. "Innovative R&D and optimal investment under uncertainty in high-tech industries: An implication for emerging economies," Research Policy, Elsevier, vol. 38(8), pages 1388-1395, October.
    11. Giorgio Prodi & Federico Frattini & Francesco Nicolli, 2016. "Regional Innovation Systems in China: A long-term perspective based on patent data at the prefectural level," SEEDS Working Papers 0316, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Apr 2016.
    12. Ziliang Deng & Honglin Guo & Guilan Kong, 2011. "Efficiency Spillovers of Foreign Direct Investment in the Chinese Banking System," Global Economic Review, Taylor & Francis Journals, vol. 40(2), pages 179-191.
    13. Guariglia, Alessandra & Liu, Pei, 2014. "To what extent do financing constraints affect Chinese firms' innovation activities?," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 223-240.
    14. Ito, Banri & Yashiro, Naomitsu & Xu, Zhaoyuan & Chen, XiaoHong & Wakasugi, Ryuhei, 2012. "How do Chinese industries benefit from FDI spillovers?," China Economic Review, Elsevier, vol. 23(2), pages 342-356.
    15. repec:gam:jsusta:v:9:y:2017:i:11:p:2121-:d:119383 is not listed on IDEAS
    16. repec:bla:coecpo:v:35:y:2017:i:4:p:735-750 is not listed on IDEAS
    17. Youngwoo Rho & Joel Rodrigue, 2015. "Growing into Export Markets: The Impact of Exporting on Firm-level Investment in Indonesia," Review of International Economics, Wiley Blackwell, vol. 23(1), pages 62-85, February.
    18. repec:mes:eaeuec:v:53:y:2015:i:5:p:424-438 is not listed on IDEAS

    More about this item

    Keywords

    Innovation; FDI; finance; China;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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