The Empirical Research On The Impact Of FDI And Innovation On Technological Progress Of Domestic Firms

It has been proved that FDI plays an important role in China's economic growth and technological progress. Although absorption of advanced technology from developed countries is a pivotal channel to promote technology level of developing countries, self-innovation system and independent core technologies are the real essence to improve the international competitiveness of a country. As the anchor of China's economy, domestic firms, no matter now or in the future, are of great importance to economy development, and improvement of their innovation capacity, therefore, are the main power to push forward the technological progress of the country. Considering it, while insisting on the open-up policy, the government also emphasizes the importance of self-innovation and the priority of education. Then questions are raised: what the role of FDI is in the technological progress of domestic firms? Does innovation capacity of domestic firms at present contribute to their technological progress? What differences are there between the effects of FDI and self-innovation to foreign firms and that to domestic firms? And what can we learn from the practice of foreign firms?Based on questions above, this paper, after brief description and analysis pertaining to FDI and innovation capacity of domestic firms, first studies the impact of FDI and innovation on technological progress of domestic firms with data of 35 industries. Since China's technological progress is attributed to both progress of domestic and foreign firms, and they are both influenced by FDI, this paper also does an empirical analysis on foreign enterprises. The result indicates that domestic technology improves quickly and transcends foreign firms in 2004, and that FDI influences domestic firms mainly through technological diffusion, and the"Innovation"of R&D , which is a part of innovation, is pivotal to the technological progress of the domestic, however, the effect of human capital is insignificant in either absorption or innovation. In contrast, since the technological gap is small between foreign firms, they have access to the spillovers from FDI with the help of"Absorption"of R&D, and what's more, human capital promotes technology significantly. According to these empirical results, the paper comes up with relevant policies from aspects of FDI, R&D and accumulation of human capital.