Fdi Technology Spillover Mechanism

The last two decades has witnessed the great change of China's attitude towards MNE and the drastic inflow of FDI. Since 1993, China has been the largest host developing country. Strategically, FDI is encouraged and expected to benefit domestic firms' technological capability and competitive competence via technology spillover. Therefore, there is one significant and interesting question need to be answered, that is, whether our expectation has been realized, to what extent, and how?This study focuses on the FDI technology spillover mechanism in China. It consists of three parts: literature review, theoretical framework and empirical study.Chapter 2 is literature review. Employing literature-metric and meta-analysis methods, this chapter concludes that, the academic focus on FDI technology spillover has shifted from the existence test to the mechanism investigation, and particular attentions are paid to the channels and determinants of FDI technology spillover. In addition, the performance of China's technology spillover from FDI is becoming an international hot topic.Chapter 3 presents theoretical foundation and framework for this study. Based on three key variables, which are technology distance, effective linkage and absorptive capability, this chapter shows an integrated FDI technology spillover flow chart, and puts forward some hypotheses to be tested.Chapter 4 and 5 are empirical study, the key part of this dissertation, covering econometric study and case analysis respectively.Using statistical data description, the first section of chapter 4 proves that, technology distance and thus the premise for technology spillover does exist between foreign and domestic firms;the size of the technology gap is determined by the FDI source and local firm's ownership system.Using co-integration method and error correction model (ECM), the second section of chapter 4 investigates the long term trends and the short term influence ofFDI on China's total factor productivity (TFP) from 1983 to 2004. The estimated results indicate that, from country-level perspective, the FDI presence does benefit China's TFP growth, but the magnitude is statistically insignificant.Using panel data model, the third section of chapter 4 examines the mechanism of FDI technology spillover in China's hi-tech industry from 1998 to 2003. The estimated results show that, domestic firm's creativity capability is mainly determined by its own R&D inputs and human capital accumulation, while the effect of FDI spillover is quite limited.Chapter 5 covers a typical case analysis from China's auto industry. Data statistics reveal that, Joint Venture (JV) plays a dominant role in China's auto industry FDI inflow. FDI has resulted in some technology spillover effect, such as demonstration effect, backward linkage effect, and labor liquidity effect, among of which, labor liquidity is a relatively important channel of technology spillover. However, FFEs are reluctant to spillover any key and advanced technology to local firms. As far as domestic firms are concerned, only those self-sufficient enterprises with independent R&D activities and certain absorptive capability can attract ambitious human capitals, and benefit from FDI technology spillover.Chapter 6 concludes. Since labor liquidity is a comparatively important channel of limited technology spillover from FDI, China's government is suggested to pave the way for labor liquidity from FFEs to domestic firms. Since domestic firms' R&D willingness and absorptive capability are key variables to benefit from FDI technology spillover, and to improve their technological capability, domestic firm's independent research and development effort should be encouraged and subsidized.