An Empirical Study On Institutional Factors Affect FDI Technology Spillover

With the development of economic globalization, international capital flows more frequently. As the vector of international element, not only can foreign direct investment transfer a great number of capital, but also intangible capital as advanced technology, experience in management and so on to the host country. As the capital market’s developing, global capital has eased the situation of capital scarcity. The major target of attracting FDI inflows turns to absorb technology spillovers taken by FDI in more and more countries. However, the effect of FDI technology spillover is affected by many factors, which one of them is the host country’s institution.In the theory part, we first sort out all the literature, and then conclude the literature at home and abroad from two aspects which are FDI technology spillover and the factors which affect FDI technology spillover. After clarifying the mechanism of FDI technology spillovers, and finding the factors which affect the FDI technology spillover, we focus especially on how FDI technology spillover can be affected by intellectual property institution, market economy institution, credit institution and legal institution.In the empirical part, we use panel data of 10 countries which own a large amount of FDI inflows in 1991-2008 to analyze the effect of these four institutional factors in absorbing technology spillover.The empirical results show that ignoring the variables of institutional factors, the effect of FDI spillover was positive in these countries, while turns to insignificant or significantly negative after considering those factors. It means that, FDI technology spillover is constrained by the host institution environment: the more perfect the institution of the host country, the better positive effects of FDI technology spillover on technological progress. At the same time, it’s not perfect of the institution in developing countries, but gradually improving over time, which causes the growth of the host country’s economy. If we ignore the role of institutional change in the progress of technology, it’s simple and unreasonable to attribute part of the technological progress which can’t be explained by R&D investment and human capitals to the contribution of FDI technology spillover.