The Impact of FDI on Domestic Firm Innovation : Evidence from Foreign Investment Deregulation in China
This paper studies the impact of foreign direct investment on domestic firms’ innovation in China. It provides causal evidence by exploiting China’s foreign direct investment deregulation in 2002 and employs a difference-in-difference estimation st...
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| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/en/922111621871641547/The-Impact-of-FDI-on-Domestic-Firm-Innovation-Evidence-from-Foreign-Investment-Deregulation-in-China http://hdl.handle.net/10986/35633 |
| Summary: | This paper studies the impact of foreign
direct investment on domestic firms’ innovation in China. It
provides causal evidence by exploiting China’s foreign
direct investment deregulation in 2002 and employs a
difference-in-difference estimation strategy. Using a
matched firm-patent data set from 1998 to 2007, the results
show that the quantity and quality of domestic firms’
innovation benefit from foreign direct investment. Moreover,
the paper emphasizes the importance of knowledge spillover
from foreign direct investment in similar technology
domains. The analysis examines the role of horizontal
foreign direct investment and foreign direct investment in
technologically close industries—industries that share
similar technology domains. The findings show that foreign
direct investment in technologically close industries
generates much bigger positive spillovers than horizontal
foreign direct investment. The paper also shows that
knowledge spillover from foreign direct investment in
similar technology domains is not driven by input-out
linkages. Moreover, the spillover effect is stronger in
cities with higher human capital stock and firms with higher
absorptive capacity. |
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