The Impact Of Entrance Of Foreign Enterprises On The Innovation Of Domestic Enterprises

As economic globalization intensifies, especially after accession to WTO, more and more foreign enterprises entry into China’s market, which increasingly promote China’s economic development. But, whether foreign enterprises really favorable to the development of China’s enterprises or not, especially to the innovation of Chinese enterprises, get a universal concern. And the specific circumstances of all industries vary widely in China, the technology gap between our industries with foreign enterprises are not the same. That is deserved our profound discuss about what and how foreign enterprises impact the innovation of domestic enterprises with the technology gap.This paper combined theoretical modeling and empirical research, qualitative and quantitative analysis, studied that the market entry of foreign enterprises affected domestic enterprises innovation in the technology gap. Firstly, in the basis of Aghion’s market entry of foreign enterprise model, combined the realities of this paper and economy, we modified the theoretical model. Conclusions are as follows:the market entry of foreign enterprises has a positive effect on R&D investment and technological progress of frontier enterprises, but have a negative effect on behind frontier enterprises. Secondly, using the panel data of China’s manufacturing industry in1999-2009, the empirical study found that entrance of foreign enterprises had positively correlated with technology gap. Market entry of foreign enterprises and the technology gap of domestic enterprises had a positive impact on innovation. But foreign enterprises enter the Chinese market, the greater the technology gap, the more unfavorable to the innovation of domestic enterprises. Finally, on the basis of theoretical modeling and empirical studies, we put forward the corresponding policy recommendations about investment and technology import.