The Research Of Foreign Direct Investment,Industrial Agglomeration And Innovation Ability From The Perspective Of New Economic Geography

For the past few years, with the rapid development of globalization, the multinationalcorporation has played an important role in the process of regional industrialagglomeration. The analysis of new economic geography has suggested that thecorrelation effect can become a driving force for the regional industrial agglomeration.Krugman and Venables (1995) have further proved that even if they are at first fullysymmetrical regions, they may form regional industrial agglomeration because of somecorporation’s access by accident. Therefore, to those periphery areas of industrialagglomeration who cannot be formed by their own capacity, appealing foreign directinvestment to form a local productive system full of activity has become an effect processto increase the local development of economy.Because the industry of agglomeration has easy access to obtain externality,industrial agglomeration has made a great effect on technical progress. Krugman(1991)have ever summarized this externality into three aspects: economies of specialization,economies of labor market and knowledge spillover. In this sense, the multinationalcorporation of industrial agglomeration will lead technology upgrading and qualitypromotion of Local Corporation from labor mobility, correlation, demonstration andspillover effects, which will produce a positive auxo-action to the innovation ability ofcluster. Meanwhile, the access of multinational corporation will also help establish theleading role of cluster in local industry, then lead to self-reinforcing mechanism so thatmuch more foreign direct investment will be attracted to this cluster region which willbecome technical and innovation center of local industry.The paper overcomes a defect about the impact of foreign direct investment toinnovation ability which has always been solely studied by previous researchers, thus weinclude industrial agglomeration to analyze this problem. The thesis is based on LocalSpillover Model of New Economic Geography, in order to be more realistic, the modelallows the capital to flow freely between regions; however the owners of capital don’thave the spatial mobility, and then we deeply discussed the mechanism of action amongforeign direct investment, industrial agglomeration and innovation ability. We find that foreign direct investment will produce industrial agglomeration and further improve theinnovation ability. Especially, we also prove the existence of the mechanism with a paneldata which has31provincial units from1998to2011in China. Based on that, we alsoexamined the difference of industrial agglomeration between regions which is aroused byforeign direct investment and the difference of innovation ability between regions which isdue to industrial agglomeration using a panel variable coefficient regression model. Theresults indicate that the effect of east is stronger than that of midland which is strongerthan that of west. This paper repeatedly explains the power source of improvinginnovation ability, and industrial agglomeration element as an intermediate transmissionpower is being revealed. The discovery suggests that in order to improve innovationability, we should not only pay our attention to foreign direct investment, but also shouldhighly value the contribution of industrial agglomeration.