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Foreign Direct Investment And Innovation: Evidence From Chinese Firms’ Patent Filings

Author

Listed:
  • TING CHEN

    (School of Finance, Guangdong University of Finance & Economics, 21 Luntou Road, Guangzhou, P. R. China)

  • XIANMENG CHEN

    (School of Economics, Xiamen University, 422 Siming South Road, Xiamen, Fujian, P. R. China)

  • WENJIE LUO

    (Institute of Industrial Economics, Jinan University, 601 Huangpu Avenue West, Guangzhou, P. R. China)

  • XUNYONG XIANG

    (Institute of Industrial Economics, Jinan University, 601 Huangpu Avenue West, Guangzhou, P. R. China)

Abstract

One main motivation of attracting inward foreign direct investment (FDI) for emerging economies is to obtain knowledge spillovers from developed countries and promote domestic innovation. The effects of FDI on innovation include both the direct effects from FDI on targeted domestic firms and indirect effects from foreign ownership on other foreign and domestic firms’ innovation. Applying a design with a two-stage randomization procedure that allows for both direct and indirect effects of FDI on innovation and allows these two effects to vary with the share of foreign firms in a well-specified cluster, we empirically investigate the effects of inward FDI on Chinese firms’ innovation using patent filings as a proxy for innovation. Our findings indicate that the potential innovation of firm varies with the share of foreign firms in the cluster. The approach used in this paper can help researchers and policymakers to better understand the benefits of inward FDI promotion programs, agglomeration and regional policy.

Suggested Citation

  • Ting Chen & Xianmeng Chen & Wenjie Luo & Xunyong Xiang, 2023. "Foreign Direct Investment And Innovation: Evidence From Chinese Firms’ Patent Filings," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 68(02), pages 507-538.
    • Handle: RePEc:wsi:serxxx:v:68:y:2023:i:02:n:s0217590822500217
    DOI: 10.1142/S0217590822500217
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    Cited by:

    1. Wenjie Luo & Xunyong Xiang, 2024. "Unsynchronised Legislation and Unintended Pollution: Estimating Regulation-Induced Substitution in China," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(3), pages 731-760, March.

    More about this item

    Keywords

    Inward FDI; innovation; direct and indirect effects; spillover effects; technology transfer;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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