Panel Data Study On R&D Spillovers From FDI In China

With economic globalization, FDI is not only played the role to close loopholes and promote the employment of the host nation, but also to the R&D capacity as well as economic development through the technology spillovers. Now, China has become the one of the countries which attracts foreign investment most, and the influence on China from foreign investment is increasingly important. The academic research about the effects of foreign investment is more and more too, and the argument about "market for technology" is gradually increasing. Does the inflow of FDI to China have a positive impact? Do its technology spillovers upgrade the R&D capability of China? Does this effect vary with the region?In this paper, we review the research about FDI spillover effects first and find that the conclusions varied. Theoretically, most scholars support the positive spillover effect, but the empirical results are different. Most studies are concerned about the impact to the economic development of the host country from FDI, and use total factor productivity or per capita GDP to measure the FDI spillover effect. This paper believes that the most important impact on the host is about R&D capability which is the purpose of "market for technology". So, we choose it as the topic of this paper.Then this paper analyze the overflow micro-mechanism from FDI to the host R&D capacity and summarize it into three transmission channels: imitation,competition-R&D conduction, association-R&D conduction as well as the mobility-R&D conduction. On this basis, this paper pointed out four host factors which can affect the R&D spillover from FDI:the level of economic development, the level of human capital, financial market efficiency and economic openness.Then this paper uses thirty Chinese provincial panel data from 1998- 2008 to empirical analyze the R&D spillover effects of FDI and find that FDI has a positive impact on China innovation capability overall, but varies in different regions. Grouped test of sub-samples shows that when the level of economic development, the level of human capital, financial market efficiency and economic openness are not the same, the R&D spillover effects due to FDI are quite different. On this basis, the article holds that the reason of the regional differences is because of threshold effects. Then we build a continued multiplication model to estimate the threshold levels. That is, when one factor of a region crosses a certain threshold level, the R&D spillover effect exists; when the factor doesn't cross the level, the R&D spillover effect is not obvious. The empirical result shows that low level of human capital and low efficiency of financial markets are the major bottlenecks of China's absorption of FDI technology spillovers. Most areas haven't crossed the threshold level. About the level of economic development and economic openness, most areas of these two factors have been over the level.Based on the related theoretical analysis and empirical tests, this paper give some political recommendations, including raising the quantity and quality of foreign capital, optimize investment environment, increase R& D input and the level of human capital as well as regional policy change.