A Study Of Technology Spillovers From FDI In China

This paper attempts to address factors influencing the forthcoming of technology spillovers from FDI in the lights of government's strategical choices of FDI attraction policy, regional competition under decentralization and industrial network.The paper first presents a simple and orderly literatural review on both throretical and empirical development related to FDI studies. In theory, the exisitence of technology spillovers from FDI is guaranteed, which also provides theoretical support for countries to employ generous incentive policies to attract FDI. Unfortunately,empirical studies in different countries didn't suggest such perfect results—spillovers are not always positive.Then the paper makes a brief introduction to the history of FDI attraction in China and an empical study with use of time series data over the period of 1990-2005. The results show that: in China, at present, domestic R&D input is the main source of technology progress; FDI plays an important role in total factor productivity growth, but it occurs mostly through the direct effect that results from FDI enterprises'higher productivity owing to their advantages, rather through the indirect spillover effect that may increase the ability of endogenous technology. Yet stock of human capital can promote the spillovers of FDI.Based on the empirical results above, the paper investigates the influence of government's FDI strategies on the strategical responses and spillover effect of FDI enterprises (or MNEs) in a coorperative games framework. We find that MNEs accepted by host government can improve domestic market values, but with the presence of absorptive shredhold, it is not so naturally easy for domestic firms to benefit technology spillovers from FDI. In such a circumstance, at least two choices are left to host government: offering certain side payment (or so called non-linear pricing plans) whicht may encourage firms (foreign or domestic) to engage in more technological activities, alternatively or simultaneoustly , attracting more than one MNEs into one project which may effectively enhance competition between them and weaken their power in negociation, which will also force them to employ or make greater efforts to achieve more advanced technology to maintain their advantages, hereby increase potential the spillover effectWe notice that in China there is severe competition between local governments, especially in FDI attraction. Analysing in the approaches of institutional economics and new political economics, we argue that the rigional competition arises from the unique interaction between politics and economy. As far as FDI attraction concerned, it is local governments who are involved in FDI attraction games. With high belief of its positive impact on capital inflows, employment and GDPgrowth, FDI successfuly meet the local governments'needs in the short run, which is reflected by the fact that local governments have been competing with each other to provide foreign investors generously with special incentives. consequentaly, the quantity of FDI stands out its quality; the technological spillover effect anticipated by central government sacrifices to local employment or GDP growth targets; local long-run interests are neglected by local officials with their promising bureaucratic seek. After all technology spillovers from FDI and technology progress are an implicit and long-run process. Then who benefits most? MNEs.Network is a popular concepct, but industrial and social networks are seldom taken into consideration with the effect of technology spillovers from FDI. In fact, FDI carried out by MNEs is a exploring process of their original networks of production, marketing and even resources. Technology spillovers from FDI in nature is a kind of technology flow in such a network structure.Our study shows that different industrial network structures where MNEs lie in have distinct influence on spillover effect of FDI, but the locking effect of MNEs technology network and the social network of their employers keep human capital against immigrating beyond the ring of MNEs.In brief, the forthcoming technology spillovers from FDI count on two fundermental aspects: effective entrance (or transfer) of advanced technology and effective absorption of it. We believe that (1) appropriate FDI incentive policies and regional advanatage expansion are desirable ways to accelerate and deepen technology transfer ;(2) establishment of hamonous industrial network , higher quality and liquidity of human capital are the best choices that will improve the absorptive capacity in host country. Vigorous combination of the two aspects will generate driving forces and absorptive platform for more siganificant technology transfers and spillovers from FDI.