Technology Spillovers Of FDI And Its Threshold Characteristics:Empirical Research From Chinese Provincial Data

Since the reform and opening in1978, China has obtained great achievements in the economic field which attracted worldwide attention and praise. However, China’s economic growth model still relies on a large quantity of input factors at the expense of the environment. Considering international environmental voice is rising and domestic environment is getting worse, extensive economic growth mode in the past has not been sustainable. The Schumpeterian growth model, a new type which is characterized by economic restructuring, technological innovation and micro-enterprise management system innovation, is destined to become the historical trend. Scholars generally agree that technological progress is playing an important role in the transformation of the economic growth mode in China. In opening economic systems, continuous technology promotion needs domestic and foreign forces, including domestic technology research and international technology spillovers.Foreign direct investment (FDI) is playing an important role in the international technology spillover levels, which has long been a concern in academic circles. A large number of studies have pointed out that the introduction of foreign direct investment is like a double-edged sword. On the positive side, it can make up for lack of funds and technology of the host country, generate technology spillover effect through the competition effect, personnel training and flow effect, demonstration and imitation effect, forward and backward linkage effect and other channels or angles, thus raising the level of technology in the host country enterprise. But, it also has a negative effect by "stealing market" and causing the deterioration of the environment. How to benefit from the introduction of foreign capital while avoiding disadvantages has become one of the hot topics of scholars.Existing literature on the study of technology spillover effects of foreign direct investment is mostly focused on technological progress of production, while ignoring the spillover effects on technology progress of pollution control. Nevertheless, the study of threshold characteristics of foreign direct investment technology spillovers tends to focus on the technology gap and other conventional variables, but lacks attention on new expansion.Therefore, this paper discusses the influence of the level of human capital, the degree of marketization and the industrial services ratio on the difference in spillover effect of FDI with the application of panel threshold technology, which is based on the depiction of foreign direct investment in the provincial pattern differences, using data envelopment and stochastic frontier approach to estimate the Chinese provincial traditional technical level (without considering environmental factors) and comprehensive technical level (considering environmental factors) in1995-2011, to reach the following conclusions.Based on the Theil index, it shows that foreign direct investment has the significant trend of nationwide convergence, and the differences among eastern, central and western part of the country is the biggest factor that causes the overall difference. It is the difference between the two groups’ rapid narrowing that lead to the overall difference tending to convergence. Meanwhile, the gap between the eastern interior tends to shrink, while the gap between the central and western interior tends to expand.While estimating the level of efficiency, with the use of stochastic frontier approach that excludes the random factors of output, and then using data envelopment approach on adjusted data to determine appropriate level of technology advancement, this paper found that the total factor environment productivity is lower than traditional total factor productivity, which suggests that China’s recent economic growth is at the expense of the environment, especially the large energy consumptions and emissions of carbon dioxide. There is a negative correlation between the rate of progress in technology and the change of technical efficiency, whether under the traditional or total factor productivity framework. It means that as the technology continues to improve, technical efficiency is showing a gradual decreasing trend.This paper not only studies the spillover effect of FDI on the level of production technology, but also takes environmental factors into analysis framework, thus analyzing the impact of foreign direct investment on comprehensive technical progress, with the intent to evaluate the role of foreign direct investment fully. And this paper found that spillover effects of foreign direct investment in the traditional technical level is greater than that in the consolidated technology, showing that the current introduction of foreign direct investment in China is at a high technology level, but not dominant in pollution reduction. Simultaneously, in the eastern part of the country, the technology spillover effect is greater than in the central and western regions, and during2003-2011, it is larger than that between1995-2002.In the threshold analysis, it is found that a good level of human capital and the degree of marketization are not only directly improving the technological level of enterprises in our country, but is also promoting the technological level of China’s enterprises indirectly through accelerating the technology spillover effect of foreign direct investment. At the same time, this paper researches the service industry ratio’s direct and indirect influence on technology progress, which reflected the important role of mutual externality between industry and services, and could initially explain the Chinese "de-industrialization" and the American "re-industrialization". However, in order to get technology spillover effect significantly, human capital, the degree of marketization and the ratio of industrial services should cross certain threshold values, and in different periods, with the eastern, central and western regions presenting different threshold characteristics.This paper could raise many policy implications in theory and practice, of which the most important policy implication deduced from these conclusions is that implication should be targeted to improve China’s present situation of human capital level, the degree of marketization and the industrial services ratio in all provinces to ensure that they can promote the technology of Chinese enterprises directly and indirectly, thus realizing green, healthy and steady development of China’s economy.