Intra‐industry Knowledge Spillovers from Foreign Direct Investment in Research and Development: Evidence from China's “Silicon Valley”

Abstract

This study examines a specific channel of technology diffusion from multinational enterprises to domestic firms in less developed regions: research and development (R&D) activities of multinational enterprises in the host country. Using firm-level panel data from a Chinese science park, known as China's "Silicon Valley," we find that the R&D stock of foreign-owned firms has a positive effect on the productivity of domestic firms in the same industry, while the capital stock of foreign firms has no such effect. These results suggest that foreign firms' knowledge spills over within industries through their R&D activities, but not through their production activities. In addition, we find no evidence of spillovers from domestic firms or firms from Hong Kong, Macao, or Taiwan, suggesting that the size of knowledge spillovers is larger when the technology gap between source and recipient firms is larger.* Todo (corresponding author):

Bridging Knowledge Gaps: Returnees and Reverse Knowledge Spillovers from Chinese Local Firms to Foreign Firms

“…Similar to previous studies using the same dataset (Li et al 2012;Todo et al 2011), we focus on the sample period of 1996-2003. The dataset provides information on a wide range of firm characteristics, notably financial performance, innovation and marketing activities, characteristics of CEOs and employees.…”

Productivity Gains and Spillovers from Offshoring

“…In the literature on productivity spillovers from R&D expenditure, a distinction is made between “rent spillovers” and “knowledge spillovers” (Van Pottelsberghe de la Potterie, ; Todo et al., ). While the former are specifically associated with the difference between the user value and the price of intermediates, the latter originate from non‐rival knowledge created by an industry's research.…”

Local Institutions, Foreign Direct Investment and Productivity of Domestic Firms

“…Studies on horizontal spillovers, however, show ambiguous results owing to a variety of competing mechanisms (Aitken and Harrison, ; Javorcik, ; Branstetter, ; Meyer and Sinani, ). FDI is expected to boost local firm productivity through technology spillover, labor market turnover, competition and foreign market accessibility (Todo et al, ; Fosfuri et al ). Yet, they may also encroach on the market share of local counterparts and drive input price up (Aitken and Harrison, ).…”