IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v15y2023i5p4196-d1080682.html
   My bibliography  Save this article

The Effect of Outward FDI on Capabilities of Sustained Innovation: Evidence from China

Author

Listed:
  • Yunxin Ye

    (School of Business, Macau University of Science and Technology, Macau 999078, China)

  • Shiyong Zhao

    (School of Business, Macau University of Science and Technology, Macau 999078, China)

Abstract

Based on theoretical analysis, this paper examines the impact of China’s outward foreign direct investment on regional capabilities of sustainable innovation. Empirical tests are used to analyze the mechanism of OFDI in regional capabilities of sustainable innovation. OFDI’s impact on sustainable innovation is tested through the fixed effect, mediation effect, and threshold effect models by using provincial panel data from 30 provinces in China from 2008 to 2019. The results show that OFDI promotes regional capabilities of sustained innovation. Moreover, the effect of OFDI on sustainable innovation is found to be mediated by regional human capital accumulation. Furthermore, this study also finds that regional absorptive capacity and financial market development are two significant threshold variables in the process by which OFDI affects sustainable innovation. Before the threshold variables exceed the threshold level, OFDI encourages sustainable innovation, but this positive association becomes stronger after threshold variables reach the threshold level. The results have strong policy implications, which will be useful for local governments to make policies with the aim to maximize the benefits of OFDI and encourage sustainable innovation.

Suggested Citation

  • Yunxin Ye & Shiyong Zhao, 2023. "The Effect of Outward FDI on Capabilities of Sustained Innovation: Evidence from China," Sustainability, MDPI, vol. 15(5), pages 1-17, February.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:5:p:4196-:d:1080682
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/15/5/4196/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/15/5/4196/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bruno Van Pottelsberghe De La Potterie & Frank Lichtenberg, 2001. "Does Foreign Direct Investment Transfer Technology Across Borders?," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 490-497, August.
    2. Fosfuri, Andrea & Motta, Massimo & Ronde, Thomas, 2001. "Foreign direct investment and spillovers through workers' mobility," Journal of International Economics, Elsevier, vol. 53(1), pages 205-222, February.
    3. Crespo, Nuno & Fontoura, Maria Paula, 2007. "Determinant Factors of FDI Spillovers - What Do We Really Know?," World Development, Elsevier, vol. 35(3), pages 410-425, March.
    4. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    5. Kogut, Bruce & Chang, Sea Jin, 1991. "Technological Capabilities and Japanese Foreign Direct Investment in the United States," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 401-413, August.
    6. Jianing Shi, 2022. "Formal Institutional Distance and Innovation from OFDI: Evidence from China," Sustainability, MDPI, vol. 14(9), pages 1-19, April.
    7. Dierk Herzer, 2011. "The Long-run Relationship between Outward Foreign Direct Investment and Total Factor Productivity: Evidence for Developing Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 47(5), pages 767-785.
    8. Fu, Xiaolan & Buckley, Peter J. & Fu, Xiaoqing Maggie, 2020. "The Growth Impact of Chinese Direct Investment on Host Developing Countries," International Business Review, Elsevier, vol. 29(2).
    9. Jin Hong & Chongyang Zhou & Yanrui Wu & Ruicheng Wang & Dora Marinova, 2019. "Technology Gap, Reverse Technology Spillover and Domestic Innovation Performance in Outward Foreign Direct Investment: Evidence from China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 27(2), pages 1-23, March.
    10. Sun, Xiuli & Li, Haizheng & Ghosal, Vivek, 2020. "Firm-level human capital and innovation: Evidence from China," China Economic Review, Elsevier, vol. 59(C).
    11. Cefis, Elena, 2003. "Is there persistence in innovative activities?," International Journal of Industrial Organization, Elsevier, vol. 21(4), pages 489-515, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li Ren & Yanping Cheng, 2024. "The Impact and Mechanism of ESG Performance on Corporate Continuous Innovation: Evidence from China," Sustainability, MDPI, vol. 16(17), pages 1-22, September.
    2. Yu Cui & Yamin Zhang, 2024. "The Impact of Urban Public Services on the Residence Intentions of Migrant Entrepreneurs in the Western Region of China," Sustainability, MDPI, vol. 16(3), pages 1-24, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Li, Linjie & Liu, Xiaming & Yuan, Dong & Yu, Miaojie, 2017. "Does outward FDI generate higher productivity for emerging economy MNEs? – Micro-level evidence from Chinese manufacturing firms," International Business Review, Elsevier, vol. 26(5), pages 839-854.
    2. Natasha Agarwal & Chris Milner, 2011. "FDI Spillovers in China – Connecting the Missing Link between Micro and Macro," Discussion Papers 11/20, University of Nottingham, GEP.
    3. Zhao, Wei & Liu, Ling & Zhao, Ting, 2010. "The contribution of outward direct investment to productivity changes within China, 1991-2007," Journal of International Management, Elsevier, vol. 16(2), pages 121-130, June.
    4. Zhang, Wenyue & Li, Jianan & Sun, Chuanwang, 2022. "The impact of OFDI reverse technology spillovers on China's energy intensity: Analysis of provincial panel data," Energy Economics, Elsevier, vol. 116(C).
    5. Chunlai Chen, 2018. "Impact of China's Outward Foreign Direct Investment on Its Regional Economic Growth," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 26(3), pages 1-21, May.
    6. Dong, Zhixiao & Miao, Zhuang & Zhang, Yan, 2021. "The impact of China’s outward foreign direct investment on domestic innovation," Journal of Asian Economics, Elsevier, vol. 75(C).
    7. Xiaoxu Dong & Cheon Yu & Yun Seop Hwang, 2021. "The Effects of Reverse Knowledge Spillover on China’s Sustainable Development: Sustainable Development Indicators Based on Institutional Quality," Sustainability, MDPI, vol. 13(4), pages 1-17, February.
    8. Song Zhang & Chunlai Chen, 2020. "Does Outward Foreign Direct Investment Facilitate China's Export Upgrading?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 28(5), pages 64-89, September.
    9. Yang Ruilin & Bathelt Harald, 2023. "How outward FDIs affect income: experiences from Chinese city-regions," ZFW – Advances in Economic Geography, De Gruyter, vol. 67(1), pages 47-64, May.
    10. Yan Li & Xiaohan Zhang & Chenxin Jin & Qingbo Huang, 2022. "The Influence of Reverse Technology Spillover of Outward Foreign Direct Investment on Green Total Factor Productivity in China’s Manufacturing Industry," Sustainability, MDPI, vol. 14(24), pages 1-17, December.
    11. Yang Gao & Sang-Bing Tsai & Xingqun Xue & Tingzhen Ren & Xiaomin Du & Quan Chen & Jiangtao Wang, 2018. "An Empirical Study on Green Innovation Efficiency in the Green Institutional Environment," Sustainability, MDPI, vol. 10(3), pages 1-13, March.
    12. Cantner, Uwe & Günther, Jutta & Hassan, Sohaib Shahzad & Jindra, Björn, 2013. "Outward FDI from the Central and Eastern European Transition Economies – A Discrete Choice Analysis of Location Choice within the European Union," MPRA Paper 51817, University Library of Munich, Germany, revised 04 Jun 2013.
    13. Agarwal, Natasha & Milner, Chris & Riaño, Alejandro, 2014. "Credit constraints and spillovers from foreign firms in China," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 261-275.
    14. Zhang, Xiaobei & Wang, Xiaojun, 2021. "Measures of human capital and the mechanics of economic growth," China Economic Review, Elsevier, vol. 68(C).
    15. Natasha Agarwal & Chris Milner & Alejandro Riaño, 2011. "Credit Constraints and FDI Spillovers in China," Discussion Papers 11/21, University of Nottingham, GEP.
    16. Pyun, Ju Hyun & Sun, Jong-in, 2022. "Is Hiring Foreign Worth It? Spillover from Foreign Firms’ Human Capital and Local Firms’ Productivity," ADBI Working Papers 1324, Asian Development Bank Institute.
    17. Ioannis Bournakis & Sotiris Papaioannou & Marina Papanastassiou, 2022. "Multinationals and domestic total factor productivity: Competition effects, knowledge spillovers and foreign ownership," The World Economy, Wiley Blackwell, vol. 45(12), pages 3715-3750, December.
    18. Ergun Dogan & Koi Nyen Wong, 2020. "Sources and Channels of International Knowledge Spillovers in ASEAN‐5: The Role of Institutional Quality," Journal of International Development, John Wiley & Sons, Ltd., vol. 32(4), pages 470-486, May.
    19. Nuno Crespo & Maria Paula Fontoura & Isabel Proença, 2009. "FDI spillovers at regional level: Evidence from Portugal," Papers in Regional Science, Wiley Blackwell, vol. 88(3), pages 591-607, August.
    20. Lisa De Propris & Nigel Driffield & Stefano Menghinello, 2005. "local industrial systems and the location of FDI in Italy," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 12(1), pages 105-121.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:15:y:2023:i:5:p:4196-:d:1080682. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.