Spillover Effects of FDI via Exports on Innovation Performance of China's High-Technology Industries

Abstract

Since economic reforms began in 1979, China has sought to overcome the technology gap by absorbing foreign advanced technology through FDI. This paper investigates the impact of FDI via exports on the innovation performance of domestic firms in China's high-tech product industries for the period 1995–2006. By using the panel data analysis, we confirm the hypotheses that: (1) exports of domestic firms have positive spillover effects on innovation performance of local firms either through learning or through competition; (2) R&D activities of foreign-invested enterprises in the host country in an industry are positively associated with innovation performance of domestic firms in that industry; and (3) import of technology, which is important to the establishment of assimilative capability, has positive effects on domestic innovation performance. This provides evidence suggesting that China's domestic firms benefit from spillovers associated with FDI and from export activity of both domestic firms and foreign-invested enterprises.