In Eastern China's Fdi Technology Spillovers

Great achievement has been made in China in terms of attracting foreign direct investment (FDI) since 1978. East China, which consists of 11 provinces, accepted the most global industrial transfer and international capital in recent years. As a whole, cumulative FDI in this region accounted for more than 80% of China. There is no doubt that foreign investment has a far-reaching impact on the economic development of East China. Therefore, how to utilize FDI and better absorb the advanced technology brought by FDI has become a big concern for policy makers of provincial governments in this region. This thesis tests FDI's technology spillover effects towards domestic firms in East China and analyzed the determinants of this effect from a new perspective - East China's absorptive capacity.Firstly, we take an overview on literatures of technology spillover effects and absorptive capacity theory. The concept of "absorptive capacity" was introduced in technology spillover effect theory to explain spillover differentiations in different countries (regions). In the next, by using 10 years' panel data of 11 provinces, we establish a dynamic 2-sector model (Feder, 1982) to analyze the lagged effects of technology spillover. The determinants on technology spillovers from absorptive capacity perspective consist of infrastructure building, economic opening, R&D, human capital, market competition and financial market efficiency.Empirical results of this thesis demonstrate that marginal factor productivity of foreign invested enterprises is higher than that of domestic enterprises in East China, and thus FDI has positive technology spillover effects on domestic enterprises. Absorptive capability, measured by infrastructure building, economic opening, R&D and human capital has positive effects on FDI technology spillover effects, while financial market efficiency plays a weakly negative role, which gives an explanation on China's insufficient financial market. These empirical results are in accords with classic literatures and East China's practical experience. Some conclusions of this thesis are also helpful for governments' policy making both theoretically and practically.