Study On The Driving Mechanism And Reverse Technology Spillover Effect Of China’s Outward Foreign Direct Investment

Since the 21st century, Intra-product specification has become an important part of the new international division of labor. The linkage among the world economic systems has focused on "production" under the new international division of labor rather than on "trade" under the old international division. The internationalized production becomes the bridge connecting national economies. Internationalized production develops mainly through the mode of Foreign Direct Investment (FDI).The inflows and outflows of FDI (OFDI) has become the important driving forces to optimize the allocation of production factors worldwide especially capital, technology and labor.As one of the most important emerging economies of the world, China has changed her foreign investment policy recently from "bringing in" to the balance of "bringing in" and "going out", and has gradually become a large investing home country. Even during and after the global financial crisis, China’s OFDI has hit the record highs and maintained rapid growth in spite of the weak growth of global FDI. In 2013, the flow of China’s OFDI reached $107.84billion, ranking the third in the world after America and Japan, China’s OFDI has achieved 11 years consecutive growth. The average annual growth rate of China’s OFDI is 39.8% from 2002 to 2013.The rapid development of China’s OFDI has questioned the traditional theory of FDI represented by the ownership-Location-Internalization paradigm (OLI paradigm). The traditional theory of FDI is based on "Monopolistic Advantage". It asserted that the ownership advantages are the precondition and basis of OFDI. However, China’s OFDI includes not only parallel and descending investment in other developing nations, but also upward investment in developed nations such as America, Japan and EU. The traditional theory of FDI has a certain explanatory power for the former investment behavior, but as for the latter investment behavior, it has difficulty in explaining why Chinese enterprises actively develop the upward investment in the absence of ownership advantages.The theoretical framework of "Strategy Tripod" integrates the strategic resource-, industry-and institution-based views systematically and enriches the traditional analytical framework based on the OLI paradigm. Also it expands research space for emerging economies’OFDI. Based on the "Strategy Tripod" theoretical framework this paper analyses the driving mechanism and the reverse technology spillover effect combined with the practice of China’s OFDI. This study has an important theoretical significance on how to use "going out" strategy to drive the transformation and upgrading of export-oriented economy in China. And it is helpful to realize the industrial structure upgrading and guide Chinese enterprises to "go out" better.Firstly, according to the heterogeneity characteristics of China’s OFDI, this paper studies the driving mechanism of China’s OFDI from two aspects, namely the home countries’push power and host countries’pull power. As for the home countries’push power, this paper utilizes microeconomic data of 304 listed firms in manufacturing industry to empirically examine home country impetus of China’s OFDI from corporate resources, R&D investment of enterprises and institutional factors through the establishment of econometric model. The result shows that China’s OFDI is positively influenced by such characteristics as scale, R&D inputs, export capacity, profitability of the company, and competition of the industry. It shows that the investing firm’s ownership advantages constituted with R&D, exporting and management capacity plays a crucial role in explaining OFDI. As for the host countries’pull power, this paper utilizes the national panel data of China’s OFDI to 69 countries from 2003 to 2012 to examine host country factors influencing geographical distribution of China’s OFDI through the development of extended gravity model on the basis of micro investment motivations of market, natural resources and strategic asset sourcing. The empirical results show that China’s OFDI to developed nations is antigradient upstream investment which focuses primarily on the nations with higher GDP per capita and close trade relation with China. China’s OFDI to developing nations is downgradient parallel or downwards investment which focuses primarily on the nations with higher GDP per capita, advanced technology and large import from China. The empirical result shows that market sourcing is the most important motivation of China’s OFDI.Secondly, the paper analyses the motivations and influencing factors of overseas R&D investment in the context of R&D globalization. R&D globalization is an important part of economic globalization. The motivations of overseas R&D investment of multinational enterprises have two types:market supported-oriented R&D and technology sourcing R&D. at present technology sourcing R&D become a hotspot. The paper introduces the practice of China’s overseas R&D investment based on literature review of overseas R&D investment of multinational enterprises and summarizes its development history, motivations, locations and patterns. Then the paper utilizes a microeconomic dataset of 177 foreign subsidiaries of 101 Chinese listed companies in manufacturing industry to analyze a variety of factors to influence supported-oriented R&D and technology sourcing R&D from two aspects of investing enterprises and host countries through the establishment of multinomial logit model. The empirical results show that the supported-oriented R&D investment is influenced by the purchasing power and R&D resources of the host country. The technology sourcing R&D investment is influenced by the parent firm’s technical level and the R&D resources of the host country together.Finally, based on innovation-driven growth model this paper studies the reverse technology spillover effect of China’s OFDI. Because knowledge spillover has the features of geospatial binding and tacit knowledge, enterprises can become the biggest beneficiary of knowledge spillover only when they are close to technology innovation sources. Therefore, as long as there is the possibility of technology diffusion, companies will still choose FDI rather than exporting to serve the foreign markets, even though they don’t have the monopoly advantages. The paper analyzes the reverse technology spillover mechanism of China’s OFDI and takes three channels of technology transfer into account:exporting, IFDI, OFDI. Using the time series data of China’s industrial TFP, domestic R&D capital stock and foreign R&D capital stock during period 1985-2008, the paper empirically tests the existence of China’s OFDI reverse technology spillover effect. The result shows that the current reverse spillover effect of China’s OFDI is not significant. Compared with IFDI, the scale and level of China’s OFDI is still in the initial stage. The technology sourcing OFDI accounts for a small proportion in the total OFDI. The reverse technology spillover effect has a certain lag. All these factors are the main reasons for unremarkable China’s OFDI spillover effect.Based on the OFDI practice of Chinese enterprises, this paper makes certain innovation on the basis of using various theories. We analyses the driving mechanism of China’s outward FDI both from the home country and the host countries. At the same time, the reverse technology spillover effect model and mechanism of China’s outward FDI are discussed. We also empirically test the existence of Chinese OFDI reverse technology spillover effect. In the end some suggestions are proposed for how to use OFDI to promote domestic technology progress and industrial upgrading.