How Do Chinese Industries Benefit from FDI Spillovers?

Author Name ITO Banri  (Fellow, RIETI) /YASHIRO Naomitsu  (Consulting Fellow, RIETI) /XU Zhaoyuan  (Enterprise Research Institute of the Developing Research Center of the State Council) /CHEN Xiaohong  (Enterprise Research Institute of the Developing Research Center of the State Council) /WAKASUGI Ryuhei  (Research Counselor, RIETI)
Creation Date/NO. May 2010 10-E-026
Research Project Research on Changes in Multinational Corporations, Trade Structures, and Market Institutions
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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.

Published: Banri Ito, Naomitsu Yashiro, Zhaoyuan Xu, XiaoHong Chen and Ryuhei Wakasugi, 2012. "How Do Chinese Industries Benefit from FDI Spillovers?," China Economic Review, Vol. 23(2), pp. 342-356