Foreign Direct Investment Spillovers From Different Sources

The different sources of China's incoming foreign direct investment can be divided into two main types:investment from Taiwan, Hong Kong, and Macao (THM), and the investment from other foreign countries (OFC). Of the two, investment from THM comprises an important share of the total FDI. There are obvious differences between the investment from THM and OFC in project scale, industry orientation, regional distribution, localization strategies and so on. Therefore, when we examine the FDI spillovers in China, it is necessary for us to divide aggregate FDI into investment from THM and investment from OFC, in order to estimate and compare technology spillovers of FDI from different sources.This paper starts by examining the FDI from different sources, employing various research methods such as theoretical analysis combined with empirical estimation, aggregate analysis combined with structural analysis, and empirical analysis combined with case studies. In order to examine the technology spillovers of FDI from different sources, these are analyzed and estimated by industry sector, service sector and level of multinational company's R&D investment. Through this method, this paper retains theoretical value and practical significance.This paper builds a theoretical research frame of FDI spillovers from different sources based on the foreign direct investment theory and the economic development theory. Technology spillovers of FDI from different sources are generated through various effects, including imitation and demonstration, competition, personnel training, and linkage effects. The results of FDI technology spillovers from THM and OFC investment are different. The aim of FDI technology spillovers from different sources is to promote FDI spillovers from different sources effectively, improve the technology level or productivity of domestic companies, and achieve technological progress.The empirical estimation section utilizes the Cobb-Douglas production function model and panel data to conduct analysis. Given China's current situation and newer trends of attracting FDI after reform and opening up, this paper analyzes and compares the estimation of FDI techonology spillovers from different sources. Using the above methods, this paper estimates whether different spillovers from different sources of FDI exist, are significant, and compares the different sources'varied effects respectively.This paper's first main research focus is on the industrial sector, currently the primary attractive sector of FDI inflow to China. We take domestic industrial enterprises as the objects of research, and estimate FDI technology spillovers from the industry and district levels. Research estimation shows that spillovers do vary among the different sources of FDI, and the spillover effect may change based on different district, industry, and different levels of labor and technology intensity. For the industrial sector, the main spillovers are inter-industry spillovers, and exist more in labor-intensive industries than technology-intensive industries. The intra-industry spillover is not significant, and overall spillovers from THM are relatively higher than those from OFC. Furthermore, technology spillovers of FDI from different sources varied among different districts. In eastern district, techonology spillovers of FDI from different sources are not significant, but in the middle and western district, there exist significant spillovers, and especially THM spillovers are siginificantly positive in the middle district.Secondly, the recent trend of rapid FDI growth in global services has caused China's service sector to expand quickly. This paper employs case studies and empirical estimation to test techonology spillovers of FDI from different sources in service sector. Our estimation results show that spillovers from THM are negative, but spillovers from OFC are significantly positive.Thirdly, the development of multinational R&D internationalization has given rise to a new trend of FDI. Recently, multinationals have expanded the scale of R&D investment and the number of established R&D centers in China at an increasing rate. After examining the current trends of China's incoming R&D investment from the aspect of the different investment sources, the paper uses firm-level panel data to further analyze these sources'R&D spillovers. The estimation results show a time delay for R&D spillovers; this means although R&D spillovers are not significant at the time of investment, they are significant after a one period time lag. In addition, R&D spillovers from THM are relatively higher than that from OFC.Based on the above theoretical analyses and empirical tests, this paper provides suggestion and guidance in order to promote FDI spillovers from different sources effectively, improve the productivity of domestic companies, and achieve technological progress.