A Study On The Effect Of FDI Quality Spillover

Acceleration on the transformation and upgrading of international trade has become a primary issue in China recently under the pressure from home and abroad. To respond to changes of international environment, China government gives enough emphasis on export quality improvement.Not only is it a hot topic to government of export product quality increase by local enterprises, but to academics as well. Multinational companies from developed countries dominate the global value chain by technology monopoly advantages. Along with global production fragmentation, FDI flows from developed countries to developing countries shapely, which provides chance for local companies in developing countries to improve themselves through spillover from FDI. Based on the logic above, scholars attempt to find positive evidence on technology spillover effect by FDI. However, no consensus reaches on this topic till now.The economic logic of the "FDI spillover confusion" is as follow. On one hand, local companies may narrow the quality dispersion between FDI through spillover effects. One the other hand, they may be forced to withdraw from the high-quality product market. Even if the quality of FDI spillover effect does work, it may fail due to "overflow threshold". Therefore, there are many uncertainties on FDI quality spillover effect. This paper attempts to unravel the "mystery of FDI quality spillover effects" from both theoretical and empirical aspects, main works in this paper are as follow:First, test the FDI spillovers effect in China and verify main pathways to local enterprises following Javorcik (2004); Second, give explanations on the differences in FDI quality spillover effects, from the view of learning ability in terms of local enterprises, regional institutional environment, trade regime; Third, examine the effect of agglomeration on FDI quality spillover by exploring the different effect of "open" and "closed" type of agglomeration in China.We find that:first, FDI spillovers play significantly positive effects on quality improvement by local enterprises channeled through backward linkage, the forward spillover effect limits in high-tech industry and high-quality products, but no evidence appears on horizontal effect; Second, FDI spillover effect differs in terms of enterprises size, ownership, location institution environment et al.. Even more, FDI spillover effect disappears for small-scale enterprises, private companies and low market-oriented regions; Third, FDI spillover is stronger through not pure processing trade regime but mixed type; Finally, the positive effect of agglomeration on FDI spillover depends on the trade-off between advantage of externalization and disadvantage of market fragmentation. Taking examples of high-tech zones (HTZ) and export processing zone (EPZ) as open and closed type of cluster zone, we find that the effect of open type cluster zone on FDI spillover is significantly positive, but closed type cluster zone is reversed. The innovation and contributions of this paper on the existing literature are that:First, test the quality of FDI spillovers from the perspective of vertical spillover, explaining, to some extent, the paradoxical arguments on FDI spillovers across the existing literature, that is ignoring the vertical link quality FDI spillover effects may be the cause of negative FDI spillover effect on product quality put forward by existing literature. Secondly, verify the role of mixed trade pattern in promoting FDI spillovers on quality, and explain that why does the role of processing trade in promoting FDI spillovers dramatic different, that is ignoring the distinction between pure processing trade enterprises and mixed trading enterprises, may lead to denying the role of processing trade in promoting FDI spillovers put forward by the existing literature. Third, examine the negative impact on FDI spillovers by the way of the "closed" gathering, and the active role of reducing market segmentation in promoting FDI spillovers on quality. Explain the reason for the divergence on whether the agglomeration policy can promote the quality improvement in existing literature, that is ignoring the distinction between the "open" agglomeration and the "closed" agglomeration, about the latter, positive externalization of agglomeration will be offset by market fragmentation.