A Study On Technology Spillovers Of Service FDI In China

Many developing countries strive to absorb foreign direct investment (FDI) and the main reason for this is to take advantage of FDI technology spillovers. In contrast to earlier literature, which focused on technology spillovers from Manufacturing FDI, this study aims to investigate technology spillovers from services FDI.In the theoretical Part, this dissertation analyses the mechanism of technology spillovers through services FDI. Firstly, this dissertation analyses the channels and effects of intra-industry spillovers from services FDI. Specifically, FDI in services sectors may increase competition in local markets and result in services price reductions, lead to improvements in services quality, result in a greater variety of services being provided, result in leaking of managerial, marketing, and organizational know-how and best practices from foreign to domestic providers, which are likely to stimulate productivity growth within the services sector. Secondly, this dissertation analyses the channels and effects of inter-industry spillovers from services FDI. Specifically, the aforementioned FDI induced improvements in services sectors benefit the productivity growth of downstream manufacturing users. Services FDI can also benefit manufacturing plants through spillovers of'soft technology' linked to managerial, organizational, or marketing know-how and technical skills. Thirdly, this dissertation analyses the factors of technology spillovers from services FDI. Secondly, the level of rule of law, the degree of labor market liberalization, human capital, and the level of service development will affect the technology spillovers effects.Based on theoretical analysis and the present condition in China, this study puts forward four hypothesizes about technology from spillovers service FDI. In the empirical Part, based on time-series data of total factor productivity (TFP), industry-level and region level panel data from China, this dissertation tests for these hypothesizes and have the following conclusions. Firstly, we find there are long-term and positive relationship between service FDI and TFP growth. Secondly, the result indicates that FDI in services sectors leads to intra-industry spillovers, and can stimulate productivity growth within the services sector. Thirdly, the data also show that FDI in services sectors leads to inter-industry spillovers, that is, can facilitate productivity growth of down-stream manufacturing industry. Fourthly, we find that the level of rule of law, the degree of labor market liberalization, human capital, and the level of service development will really affect the spillovers effects from service FDI. Specifically, regions will get more benefits from service FDI technology spillovers, which the level of rule of law is, the degree of labor market liberalization and the level of service development are better. In addition, human capital has positive relationship with the spillovers effects from service FDI, but only significant in eastern region, which means technology spillovers through service FDI have threshold effect of human capital. Only after a certain level of economic development, human capital will facilitate the spillovers effects.In the end, the dissertation presents the conclusions and brings forward some proposals for Chinese government for reference.