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The Role of Domestic Institutions and FDI on Innovation—Evidence from Chinese Firms

Author

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  • Yi Qu

    (Surrey International Institute Dongbei University of Finance and Economics)

  • Yingqi Wei

    (China and Leeds University Business School University of Leeds)

Abstract

This paper investigates the enabling factors of domestic institutions and foreign direct investment (FDI) on firm innovation in China. China has made significant institutional changes and has attracted substantial FDI, aiming to facilitate domestic innovation. Drawing on the institution-based view, we investigate how domestic institutions and FDI affect firm innovation. The results from a comparative case study of five Chinese firms and a large-sample econometric analysis based on Chinese firms reveal the positive impact of domestic institutions on innovation, but FDI is shown to have negligible effects. We argue that, given China's institutional setting, FDI may be a channel for technology transfer but this does not necessarily lead to innovation.

Suggested Citation

  • Yi Qu & Yingqi Wei, 2017. "The Role of Domestic Institutions and FDI on Innovation—Evidence from Chinese Firms," Asian Economic Papers, MIT Press, vol. 16(2), pages 55-76, Summer.
    • Handle: RePEc:tpr:asiaec:v:16:y:2017:i:2:p:55-76
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    2. Ascani, Andrea & Balland, Pierre-Alexandre & Morrison, Andrea, 2020. "Heterogeneous foreign direct investment and local innovation in Italian Provinces," Structural Change and Economic Dynamics, Elsevier, vol. 53(C), pages 388-401.
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    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G00 - Financial Economics - - General - - - General

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