The Roads Of China's Technology: FDI Tech-Spillover And Indigenous R&D

It has been said that FDI spillover and indigenous R&D are the two major engines of China's technology advance. The paper empirically tests the contribution of FDI spillover and indigenous R&D on Chinese industries' technology advance and further explores the two faces of R&D and threshold effect of FDI spillover. Following the conclusion that indigenous R&D is the main contributor of China's tech-progress, this paper turns to the examination of determinants on R&D input to provide thoughtful reference for growth continuity of China's R&D input and for other less developed countries.The first part, with panel data of Chinese industries, re-estimates the effects of FDI capital and technology advantages on Chinese industries growth and finds that it is the indigenous R&D capital that plays the main role while FDI capital contributes little and the technology gap between Chinese enterprises and FDI hazards significantly the Chinese industries growth. The finding is robust to various R&D capital discount rates.Furthermore, we estimate with threshold regression method the thresholds of R&D intensity rate and human capital, both acting as indigenous innovation efforts and absorptive ability of FDI technology spillover. However, the spillover from FDI capital cannot be identified even with the threshold test. The double threshold effects do exist in the FDI spillover from technology gap:when R&D rate and human capital level is low, the spillover effect is obvious; when the level passes certain threshold, spillover disappears since the indigenous innovation efforts enhance and FDI reinforces the technology control.Following the conclusion that indigenous R&D is the main contributor of China's technology progress, the third part turns to the examination of determinants on R&D input. With the measurement of China's technology state compared to the United States, this paper explores with the state space model the dynamic effects of determinants on China's R&D expenditure with the data during 1987-2006. The result illustrates that the growing national income, a proxy of domestic market demand, impedes the further R&D investment in China due to the enormous demand for necessities dominated by lower income class, and the income inequality is the major incentive for R&D investment via the higher pricing on the wealthy group, and that the improvement of technology state reduces the innovation risk and plays an important role in stimulating R&D expenditure.The last part gives the basic findings and conclusions as well as some policy strategy suggestions to accelerate China's technology advance.