A Study On FDI Technology Spillovers Through Backward Linkages

Many countries strive to attract foreign direct investment(FDI) and the strong incentive for this is the possible existence of FDI technology spillovers.In contrast to earlier literature,which focused on intra-industry spillovers from FDI,this study aims to investigate technology spillovers operating through backward linkages.In the theoretical part,this paper analyses the mechanism how technology spillovers take place based on five levels.Firstly,this paper thinks that spillover firms and absorption firms have some special characteristics and have different relations. Secondly,this paper considers that the existence of technological gap among firms, the motivation of both finns tend to establish backward linkages,and the tactical actions of both firms in the game will spur the spillover effects to take place.Thirdly, we conclude four main spillover channels through which knowledge diffuse from foreign firms to local firms and three main spillover effects relevant to these spillover channels.Fourthly,this study establishes a dynamic game model and a evolutionary game to analyse the process of spillover.Finally,this paper summarizes characteristics of foreign firms and local firms that will affect the spillover effects.Based on theoretical analysis and the current condition of China,this paper brings up four hypothesises about FDI technology spillovers through backward linkages.In the empirical part,this study tests for these hypothesies and have these conclusions based on industry-level panel data from Province Guangdong and case studies from China automobile industry and electronic enterprises.Firstly,we find positive productivity spillovers from FDI taking place through backward linkages. Secondly,the result indicate that spillovers occurring through such channels that include demand linkages,technology assistance,personnel training and providing standard,and spillover effects comprises of scale economy effects,technology linkage effects and competition effects.Thirdly,the datas also show that positive backward spillovers from domestic-market-oriented FDI and investment comes from HMT region(Hongkong,Macor and Taiwan) are more prominent than that from export-market-oriented FDI and investment comes from other regions.Fourthly,this study also finds that non-state-owned enterprises and firms with high technological capability could benefit much more from backward linkages.Fifthly,cases show that technological capability of enterprise is the key variable for the spillover effects through backward linkages.In the end,this paper presents the conclusions and proposals for Chinese government for reference.