Factor Accumulation Or Contractual Environment? The Research Of FDI’s Threshold Impact On Total Factor Productivity

Since the economic reform, the amount of China’s foreign direct investment(FDI) has been increasing every year. On the one hand, local governments utilize FDI as a mean of closing the gap of capital and technology expenditure. On the other hand, FDI has its own opportunity cost. To some extents, the increase of FDI does improve industrial output, regional competence, and technical level of local area, however not all areas develops. It is vital to find out how to use FDI to promote technical progress more effectively and efficiently under the current circumstances of deepening of open-up policy and industry upgrade. The main question that this article intends to analyze is the threshold effect of FDI technology spillover as well as its mechanism from differences of institutional environment, contractual environment, as well as factor accumulation level such as human capital, R&D and infrastructure within different local areas.This article will start with the fact that there are certain technology differences within different regions, as well as differences of contractual environment and factor accumulation which cause this situation. Firstly, discuss the factor accumulation and contractual environment impact on FDI technology spillover mechanism and then propose a hypothesis that good contractual environment might benefit factor accumulation and FDI technology spillover. Secondly, the article establishes a factor accumulation and contractual environment threshold model as well as cross-binomial regression model under the control of R&D, human capital by introducing element that explains interaction between factor accumulation and contractual environment. The model uses data of 277 prefecture-level cities from the Chinese industrial enterprises database between a time periods of 2003 to 2007 to implement empirical test. The empirical results show that not only the factor accumulation, but also the contractual environment would have effect on FDI technology spillover. Besides, there is a positive impact on FDI technology spillover with factor accumulation through contractual environment.In the end, combined with the current situation, the article gives policy recommendations for policy making reference based on theoretical analysis and empirical test.