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FDI deregulation and firm innovation: Evidence from firm patents

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  • Gao, Yunshu
  • Yin, Sisi
  • Ferrett, Ben
  • Gao, Bo

Abstract

This paper studies whether inward FDI deregulation promotes innovation by firms in the host country. A theoretical framework, in which the entry of additional foreign firms is associated with both spillover and competition effects, is built to guide the empirical evaluation. Exploiting data on Chinese firm-level patents in a difference-in-differences setting, this paper finds a positive and significant impact of FDI deregulation on firm innovation. Moreover, we find that FDI deregulation had a heterogeneous effect on firms: the impact was prominent on firms with high productivity while being insignificant on firms with low productivity.

Suggested Citation

  • Gao, Yunshu & Yin, Sisi & Ferrett, Ben & Gao, Bo, 2024. "FDI deregulation and firm innovation: Evidence from firm patents," China Economic Review, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:chieco:v:83:y:2024:i:c:s1043951x23001451
    DOI: 10.1016/j.chieco.2023.102060
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    More about this item

    Keywords

    Firm innovation; FDI deregulation; Firm heterogeneity; Vertical linkages;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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