Foreign Direct Investment Technology Spillover In China

Foreign direct investment(FDI)technology spillovers are considered the most important as well as the most extensively examined channel of knowledge spillovers in the literature.Policy makers in many developing and transition economies(where the economy is changing from a centrally planned economy to a market economy)treat attracting FDI as very important for host countries.They believe FDI can bring much-needed capital,management skills,modern technologies,and more importantly,contribute to increasing the productivity and competitiveness of domestic firms through technology spillovers.The empirical literature distinguishes three types of FDI technology spillovers:(1)Horizontal spillovers from foreign affiliates to their domestic competitors in the same sector;(2)Backward spillovers from foreign affiliates to their domestic suppliers;and(3)Forward spillovers from foreign affiliates to their domestic customers.Prior literature yields spillover estimates commonly based on specific data sets or methodology,which may result in the variation of results across studies.Besides,reviewers,editors,or even researchers themselves may favor results that are consistent with conventional theories,the prevailing views in the profession,or being “statistically significant”.This is the issue of “publication bias”,which may distort the empirical findings.Unlike previous literature,this study tries to synthesize horizontal/backward/forward spillover effects based on numerous existing estimates,taking into consideration uncertainties of sampling and methodology as well as various biases under meta-analysis framework.The three types of spillover effects,in the context of China,seem to be elusive regarding their existence,sign and order of magnitude.Despite the large number of empirical studies,the estimates vary so much that one can virtually find any pattern imaginable.Drawing on a unique dataset including 1018 estimates from 41 studies on FDI horizontal spillovers,694 estimates from 24 studies on FDI backward spillovers,and 530 estimates from 19 studies on FDI forward spillovers in China,our main objective is to quantitatively analyze FDI technology spillover effects,accounting for various biases and firm attributes in existing empirical results with a meta-regression analysis,and investigate determinants of FDI spillovers using Bayesian Model Averaging based Meta-Analysis.The main findings are as follows:1.FDI horizontal spillovers.Robust to different specifications,we find that(1)the average horizontal spillover effect in China is positive and economically significant;(2)the meta-regression analysis also uncovers the serious consequences of publication bias and reveals that the heterogeneity in research methods adopted by the profession to a large extent explains the diversity of the reported spillover estimates;(3)our results suggest that horizontal spillovers vary across firm attributes,including the ownership structure of foreign firms,the origin of foreign firms,market orientation of foreign firms,the ownership structure of local firms and the technological levels of local firms.For instance,our results show the nonlinear relationship between technological levels of local firms and FDI spillovers.2.FDI backward spillovers.Robust to various methods and specifications,the results show that this backward spillover effect corrected for publication bias and misspecification is remarkable and economically significant.We also derive backward spillover estimates for hypothetical combinations of study characteristics and conduct Bayesian Model Averaging based Meta-Analysis,finding the synthetic spillover estimates vary across heterogeneous firms.For instance,export-oriented foreign firms are likely to generate the greatest backward spillovers for the domestic economy among firm attributes.The meta-analysis also examines various study characteristics that explain the heterogeneity across studies of the reported spillover estimates.3.FDI forward spillovers.We find that aggregation bias,misspecification bias,endogeneity bias(including simultaneity bias and omitted-variable bias),publication bias,and firm attributes contribute to the sources of heterogeneity in forward spillover estimates;and the preferred forward spillover effects are positive but insignificant;however,their95% confidence intervals imply the high probability of the presence of large forward technology spillovers from foreign firms to domestic firm.Our results also suggest that forward spillovers vary across firm attributes,including the ownership structure of foreign firms,the origin of foreign firms,market orientation of foreign firms,the ownership structure of local firms and the technological levels of local firms.For instance,wholly-owned subsidiaries yields positive technology diffusion to local firms in upstream sectors while joint ventures negative.