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Financial development and the impact of FDI on firm innovation: Evidence from bank deregulation in China

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  • Ma, Yeqing
  • Ni, Yining
  • Meng, Ning

Abstract

This study investigates the role of financial development in shaping the relationship between FDI and firm innovation, based on Chinese firm-level dataset during 2008–2014. Our findings reveal that bank deregulation significantly enhances the positive effect of FDI on firm innovation. We also find that firms with greater absorptive capacity exhibit a more pronounced response to FDI while the absorptive capacity is enhanced by bank deregulation. These results underscore the importance of considering financial market conditions and highlight the role of absorptive capacity as a crucial channel through which bank deregulation influences the effect of FDI on firm innovation.

Suggested Citation

  • Ma, Yeqing & Ni, Yining & Meng, Ning, 2024. "Financial development and the impact of FDI on firm innovation: Evidence from bank deregulation in China," International Review of Economics & Finance, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:reveco:v:94:y:2024:i:c:s1059056024003824
    DOI: 10.1016/j.iref.2024.103390
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    More about this item

    Keywords

    Financial development; Bank deregulation; FDI; Firm innovation; Absorptive capacity;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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