Foreign Direct Investment and technology spillovers - Empirical evidences from China

By measuring the change of total factor productivity (TFP) in China's provinces, this paper develops a framework of modeling technology spillovers. Both theoretical and empirical analyses of the potential channels of international technology spillovers as well as the determinants affecting TFP in China are carried out. The derived results show that domestic research and development (R&D) expenditures, human capital stock and employments brought by foreign enterprise have significantly positive effects on output and growth of TFR The study identifies R&D performed by advanced countries transferred to host country via training of employee or learning-by-doing in FDI firms. FDI inflows are found to be an important channel of international technology spillovers, but domestic imports and imports of FDI firms do not seem to have generated adequate technology spillovers needed to stimulate productivity growth. Moreover, the effects of interaction between human capital stock and FDI stock are found to have had rather limited effects on productivity and output in host country. This suggests that human capital stock have not adequately reached a level where it can absorb advanced technology from FDI firms to generate the enough technology spillovers to stimulate the growth of productivity and output of China. This study helps better understand the impacts of activities associated with Multi-national corporations (MNCs), FDI and international trade regarding the international diffusion of technology in China.