A Path To Deepening FDI Technology Spillover: Industry Linkages

As predicted by theory, FDI imposes positive impacts on host country's economy through technology transfer, however, a number of empirical studies have confirmed the existing significant differences in different host countries in terms of technology spillover. It shows technology spillover is not inherent nature for FDI. Whether technology is spilled or to what degree technology is spilled depends on whether there are any efficient channels of transfer available between foreign affiliates and domestic enterprises.With respect to the argument that "FDI provides the channel of technology transfer rather than technology spillover itself, this paper puts forward the view that industry linkages are important access to deepen technology spillover at the present stage in China based on analysis of performance and impacts in economy and technology likely to be caused by industrial linkages built up between foreign affiliates and domestic enterprises.It gives a measurement of present linkages between foreign affiliates and domestic enterprises by such indicators as "local content" and "degree of dependency on import", and points out there is room for further linkages. Evidence shows the foreign affiliates are more dependent on imports and source less than domestic firms while domestic firms are less involved in international production chain compared with foreign affiliates.This paper also makes analysis of the conflicts between MNEs' internal vertical integration and domestic firms' industry embedding, explores the possibility of bilateral benefits from linkages, and argues that industry linkages will produce a dual-interest production system.In the subsequent section, the paper further discusses about mechanism and impacts of technology spillover from industry linkages as well as the embedded technology development mode. It is also expressed here that the embedded technology development mode should be an important mode for technology development at present stage considering its role in deepening technology spillover. Policy implications are also put forward for how to strengthen the industrial linkages between foreign affiliates and domestic enterprises.