Spatial Agglomeration And Knowledge Spillovers Of Foreign R&D In China

Nowadays, knowledge and technology innovation are the key factors to economy development. As the core driver of knowledge production and translate knowledge into productivity, R&D activity become even more significant. Although R&D and innovation are very important, under the background of globalization, it is difficult for any countries to innovate continuously only rely on its own resources. Therefore, introduce of new technology and technology diffuse become an effective way to improve science and technology of host country, which is especially significant for developing countries. Along with the R&D globalization of multinational companies, developing countries have the opportunity to improve their technology power by utilizing international R&D resources. In recently, most of countries all over the world have competed to attract foreign R&D activity. They expect advanced knowledge, technology or experience of foreign R&D can diffuse to local firms. Therefore, knowledge spillovers have become a hot point of researchers.Most research about knowledge spillovers of foreign investment come from economics. Classical economics mainly concentrate on "point" to study economical activities, but any economical activities can't break away from the geographic space. As an economical activity, spillover also belongs to spatial behavior. So, if we neglect the spatial identity of knowledge spillover, knowledge is impossible to spillover. From this point of view, the traditional spillover research ignored the spatial knowledge spillover behavior of foreign investment, and the test of knowledge spillovers exist visible gap. Beside, lots of recent papers still rested on theory analysis, the research results lack of persuasive evidences. This paper attempts to study the knowledge spillover effects of foreign R&D to make up these limitations.Based on detailed data, combined with theory analysis and empirical study with new economical geography and stochastic frontier method, the paper established panel data model to research agglomeration and knowledge spillovers of foreign R&D in China.At first, this paper analysis the spatial distribution structure of foreign R&D in China. China's foreign R&D concentrates in eastern regions, and mainly agglomerates in few countrywide or regional economic centers. The geography agglomeration degree of foreign R&D is higher than FDI and manufacture activities, the regional difference of foreign R&D distribution in China is visible. Then the paper studies the agglomeration mechanism of foreign R&D with new economic geography theory. According to the empirical research, traditional location variables can't explain the reason of foreign R&D agglomeration, and the result of new economic geography variables offer more inspirations to understand agglomeration behavior of foreign R&D. Comparing to traditional location factors as labor cost and preferential policy, trade cost, technological externality, pecuniary externality and self-reinforcement effect are the more important factors which lead to geography agglomeration of foreign R&D.Secondly, the paper distinguishes intra-regional knowledge spillovers and inter-regional knowledge spillovers of foreign R&D, utilizes stochastic frontier analysis method and technical inefficiency model to estimate these two kinds of regional knowledge spillover effects. As to the intra-regional knowledge spillovers, we found that: (1) Foreign R&D improves technical efficiency of Chinese provinces, but this effect happens only after foreign R&D stay in China for a period of time. There is no knowledge spillover in the first year foreign R&D enter China, what's worse, foreign R&D will cut down Chinese provinces' technical efficiency in the current year. (2) Foreign R&D affects Chinese provinces' technical efficiency mainly through competing effects, demonstrating effect is still limited. (3) Through intensifying the market competence, foreign R&D urged all the regions to augment capital input to improve the absorbency to knowledge and technology spillover from foreign R&D. But Chinese provinces can't upgrade their technical efficiency through absorbing advanced knowledge of foreign R&D by labors. Therefore, knowledge spillovers of foreign R&D are limited by labor capital threshold. (4) According to the regional sample, there exist visible regional difference of knowledge spillover effects of foreign R&D. Foreign R&D investment advanced eastern provinces' technical efficiency, but this effect is limited for center and western provinces. (5) Evidence from the whole 37 industries and the top 10 industries which have the highest foreign R&D entering intensity indicates that, foreign R&D do promote indigenous R&D capability of Chinese firms of these industries. Those industries which have higher foreign R&D entering intensity always have more powerful independent R&D capability. (6) Agglomeration is more effective for foreign R&D knowledge spillovers. While the spillover isλwhich don't take into account of agglomeration variable, the spillover of foreign R&D to patent of native firms is 2λwhile take into account of agglomeration, spillover to technology input is 9λ, and spillover to technology labor input is 5λ.As for the inter-regional knowledge spillovers of foreign R&D, this research point out that:(1) The foreign R&D of a province not only spillover knowledge to itself, but also have spillover effects to neighbor provinces. From the point of the whole China, the more of the neighbor province's foreign R&D scale, and the upgrade of this province's technical efficiency is more quickly. The spillovers from own province's foreign R&D is larger than that from its neighbor provinces'. What's more, spillovers from foreign R&D of neighborhood is mainly from the near province whose scale of foreign R&D is larger than this province.(2) From the point of regions, eastern provinces not only accept spillovers from native foreign R&D, but also benefit more from neighbor provinces. Eastern provinces gain more spillovers from foreign R&D of neighbor eastern provinces than from foreign R&D of neighbor but not.eastern provinces. Native foreign R&D doesn't spillover to central and western provinces, but these provinces can benefit from foreign R&D of its neighbor provinces. Be similar to eastern provinces, central and western provinces can get spillovers from foreign R&D of neighbor and the same central or western region provinces, but foreign R&D of neighbor provinces and not belong to the same region will not have spillover effect.(3) From the point of spatial interaction, foreign R&D of center provinces which neighbored to eastern provinces exist knowledge spillover effects to eastern region, but foreign R&D of eastern provinces which neighbored to central provinces have no spillover effects to central provinces. Foreign R&D of western provinces which neighbored to central provinces has no spillover effects to central provinces, and the same as foreign R&D of central provinces which neighbored to western provinces. Therefore, it is easier for foreign R&D of regions which with the similar development level to produce spillover effects.(4) Spatial knowledge spillover of foreign R&D not only exists in neighbored regions, but also happens between not-neighbored regions. There is visible geography boundary of inter-regional spillover of foreign R&D, the foreign R&D of a province in China can only spillover to the provinces within 600km far away from this province, so the spatial spillover of foreign R&D in China is limited in a definite distant range. Besides, the spillover intensity decays distinctly with distance. When distance far away from spillover center adds 300km, spillover intensity will be fading away 50%. When distance adds another 300km, spillover intensity will be fading away 70%. While the distance is even farther, the spillover intensity will be fading away completely.