Technology Spillovers, Absorptive Capability And Economic Growth In China

Technological progress is the source of long-term economic growth. The worldwide technological progress mainly depends on international technical diffusion. And foreign direct investment has become one of the most important channels of technical diffusion. This paper examines FDI spillover effect and relating factors, including technology absorptive capability (mainly human capital), investment environment and intensity of market competition in host country. After empirical analysis, we draw the following conclusions: (1) The existence of FDI spillover effect should be based on a certain level of human capital and investment environment in the host country. Only when the host country has already surpassed the threshold could the FDI generate positive spillover effect. (2) The level of human capital and investment environment in the host country determines the competition effect. Namely, enlarging the opening degree blindly couldn't lead to FDI spillover spontaneously. At the same time, we have to enhance the level of human capital and improve the investment environment in the host country. (3) Because of geographical and policy reasons, the distribution of FDI in China is growing more and more unbalanced. And this results in the lopsided development among different regions. (4) There is no stable constant relationship between FDI and economic growth, while human capital does have a constant relationship with economic growth. All in all, FDI spillover won't occur automatically. And in the long run, the effect of FDI on economic growth in China is quite limited. In order to promote FDI spillover effect and economic growth in China, we put forward several suggestions. Firstly, promote innovation of domestic firms. Secondly, enhance the level of human capital. Thirdly, optimize the competition structure of domestic structure. And lastly, improve the investment environment in middle and western regions in China.