R&D, Absorptive Capacity, and Technology Spillover via FDI - An Empirical Study based on Chinese Manufacturing Industries

Multinational Companies (MNCs) and Foreign Direct Investment (FDI) have been developing very fast since 1960s. Technology Spillover Effect was regarded as the main theory to explain the effect of FDI on host countries. This paper analyzes Absorptive Capacity from R&D perspective, evaluating the relationship between R&D, and technology spillovers from FDI. Empirical study is carried out based on data from 28 manufacturing industries from 1999 to 2007, including 252 observations. We find that the absorptive capacity of R&D is positive when measured by with indexes-R&D expenditures and R&D personnel, and is negative when measured by Patent Applications. The innovative effect of all three R&D indexes is more important than the learning effect in explaining the productivity growth of an industry. Also, some industry characteristics have significant effect on absorptive capacity of an industry.