The Effect Of FDI Spillovers On Technological Difference Between The East And Mid-west China

Many reasons stand to explain the regional difference in technology level of capital-intensive industries and technology-intensive industries in our country to widen continuously, and this research tries to analyze from the perfective of FDI spillovers in China. With China's economy increasingly integrated into the world economy, it has become extraordinarily crucial for China to make full use of its resources open to elevate its level of technology and industrial competitiveness, especially in capital-intensive and technology-intensive industries.Main points of this research are as follows:Textual Competition among Jurisdictions will lead to the decline of effective tax rate foreign company faces, and lower the technology level of FDI inflows. With the improvement of economic conditions and policy transparency, governments in eastern provinces began to attract FDI inflows by means of strengthening infrastructure construction, improving investment environment, skills of workforce and other methods gradually; measures of keeping tax rate to attract FDI inflows in competing are reduced progressively, so the technology level of FDI inflows is relatively high; while mid-west provinces still take advantage of keeping the tax rate of FDI inflows as a main method to attract FDI, compared to eastern provinces, the technology level of FDI inflows is lower, and is mainly concentrated on labor-intensive industry and other low-tech industries, leading to low level of FDI technology spillovers in capital-intensive industry and technology-intensive industry.Secondly, labor flow from the foreign enterprises to local ones can equalize the wage gap between the foreign and local enterprises, so from the change of the wage gap, we can predict the situation of labor flows, as it is difficult to observe labor flows, but easier to observe changes in labor wage gap. So this paper uses the ratio of the average wage in foreign invested enterprises to non-foreign ones in capital-intensive and technology-intensive industries, to measure labor flows in capital-intensive and technology-intensive industries. The lower the ratio, the higher the degree of labor mobility and FDI spillovers are more significant. Although the labor flow has increased these years, it is mainly concentrated on the level of unskilled labor. For skilled labor, due to higher technology, better benefit, better wage and welfare and perfect laws and rules related in local companies in eastern provinces, labor flow between foreign company and local company in high-tech industries is more frequent, thus bringing in higher FDI spillovers. However, it is not the case in mid-western provinces.Additionally, another crucial reason which affects FDI spillovers is the local absorptive capacity. Higher technological absorptive ability of developed provinces enables them to absorb the advanced technology brought in by FDI in capital-intensive industries and technology-intensive industries, while the underdeveloped provinces have fewer abilities to absorb. Furthermore, this research uses local educational level to indicate technological absorptive ability. Because of higher local absorptive capacity, the FDI flowing into developed provinces concentrate in capital and technology intensive industries, while in mid-western provinces, it is mainly in low-technology industries, which exemplifies absorptive ability.