Mutual productivity spillovers between foreign and local firms in China

The existing literature treats advanced technology sourcing as the only cause of reverse productivity spillovers from local to foreign firms and implies that mutual spillovers between foreign and local firms can only happen in the developed world. This paper argues that the diffusion of indigenous technology and local knowledge helps the productivity enhancement of multinationals, so that there can be mutual spillovers even in a developing country. The results from a large-sample firm-level econometric analysis and a comparative case study of seven companies in Chinese manufacturing support this new argument, as mutual spillovers are identified between local Chinese firms and overseas Chinese or OECD-invested firms.