Learn to be green: FDI spillover effects on eco-innovation in China

Global knowledge flows are not only important in promoting economic activities but also in addressing global environmental issues. In order to examine the mechanisms of how firms in emerging economies can learn from global partners in finding solutions to environmental challenges, we explore a rich data set covering nearly 190,595 Chinese firms and analyze the knowledge flows that local firms received from foreign firms in developing eco-innovations. We examine both knowledge flows in the same industry and those in the up- and down-stream industries, and, in particular, provide a nuanced consideration around the under-explored industrial conditions and regional institutions of technology spillovers and domestic eco-innovation. We find clear evidence that foreign green technology spillovers have a positive impact on the eco-innovation of domestic firms in China. This superior performance is particularly pronounced in certain industries (e.g., technologyintensive, pollution-intensive, and highly competitive) and cities with higher levels of environmental regulation stringency. Our results show that domestic firms differ significantly in the extent to which they benefit from global knowledge flows.