Financial Market Development Impact Of Fdi Technology Spillovers

Since 1990, the amount of foreign direct investment (FDI) absorbed by China has been increasing fast and steadily. For the developing countries (or districts), absorbing FDI is not only used to make up the capital gap and foreign exchange gap, but also take advantage of the advanced technology embedded in FDI and the positive FDI technology spillover effects. Along with the rapid growth of China economy and the accumulation of foreign exchange reserve, the capital gap and foreign exchange gap do not exist in China, so the purpose of absorbing FDI should focus on the positive FDI technology spillover effects.The premise of positive FDI technology effects is that the host countries (or districts) have the absorptive capacity matched with the scale of absorbed FDI. The dimension of absorptive capacity concludes the technology stock, the human capital, the infrastructure level and the financial market development, etc. The academic circle has different views on the FDI technology spillover effects in China. In this article, the author tried to do empirical research using the data from China's industrial sectors, which had attracted most of FDI. Considering the huge size of China and complicated administrative settings, the resources including human capital can not move freely among districts. And also for excluding the effects of other factors, the author had divided the 31 provinces of China mainland into 3 groups:Eastern Group, Central Group and Western Group, and then analyzed each group separately. This article found that FDI technology spillover effects did not exist (were negative) in Eastern Group, but in Central Group and Western Group, the spillover effects were positive. So, this article the absorptive capacity of China Eastern districts does not reach the necessary level for the huge scale of FDI inflows in these districts.As a vector of the host countries (or districts)'absorptive capacity, financial market development affects the level of FDI technology spillover effects. The well developed financial market not only provides full information and rich capital, but also promotes the efficiency of capital distribution. The enterprises in host countries (or districts) need capital to buy the patent, renew the machines and employ the high-skilled labor. Especially for the small high-technology company, the fully developed financial market can provide more financing channels. In this article, the author analyzed the ways in which financial market affects the FDI technology spillover effects and a new financing channel in China—Venture Capital using an enterprise case. Different financing ways on the financial market had different influences on FDI technology spillover effects, which existed on district level and sector level. This article's empirical evidence showed that credit market development had improved the negative FDI technology spillover effects in China Eastern districts, and stock market development had promoted the positive FDI technology spillover effects in China Central and Western districts.In summary, FDI technology spillover effects were different among China's districts. Financial markets development could improve the negative spillover effects and promote the positive spillover effects. This article also brought about some policy suggestions.