Technologies To Obtain Foreign Direct Investment In China Adverse Spillover Effects

Since the 1990s, more and more MNCs of developed countries had practiced global layouts based on value chains, transferring the location advantages of different countries into their own competitive advantages. With the ownership advantages, they dominated the highest value-added strategic links, while most developing country firms are located in the low level of Global Value Chains. Facing the global essential transformation, firms from developing countries are searching for the favorable locations in global value chains, especially for the strategic R&D links. Since the FDI inflow has not resulted in expected technological spillover, it's necessary for developing countries to launch ODI in R&D-intensive countries to absorb advanced technology and knowledge from developed countries directly. The absorbed technology and knowledge may diffuse to increase the productivity of the whole country through intra-industry and extra-industry spillover channels. Hence technology sourcing ODI is strategic for not only individual enterprises but also the state. At present the research in FDI focus on the host countries, and domestic researches pay large attention to international technology spillover effect of FDI inflow while the study on the technology spillover effect of ODI (Outward Direct Investment) is still in the early stage. In recent years, the technological sourcing ODI draws a lot of attention. Foreign study confirms that technological sourcing has become an important incentive of the FDI between developed countries, but the empirical evidence of spillover effect of developing countries ODI remains unclear. Domestic researchers have done study on industry choice, location choice and technology spillover from macro point of view. The empirical study of technology spillover from industry point of view is few.This paper briefs the existed FDI theory first, and then elaborates the mechanism of developing countries get the spillover effect through technological sourcing ODI, so as to increase the domestic productivity. The possible impact factors of this spillover effect are also discussed. In the empirical part of this article, we adopt Pottelsberghe & Lichtenberg's international R&D spillover model and make some reasonable adjustments to fit into our topic. We use the time series data between 1990 and 2008 to examine the impact of China's ODI in 7 developed countries on the manufacturing industry TFP. The results show that ODI doesn't bring up obvious adverse technology spillovers, to the contrary, it obstructs domestic technology development to some extent in both short-term and long-term. At the end of paper, possible reasons are discussed and some suggestions on enterprises and macroeconomic policy are made.