Foreign Firms and Indigenous Technology Development in the People’s Republic of China

Reprint No. 2013:33

Author(s): Fredrik Sjöholm and Nannan LundinYear: 2013 Title: Asian Development Review Volume (No.): 30 (2) Pages: 49–75

Foreign Firms and Indigenous Technology Development in the People’s Republic of China Fredrik Sjöholm and Nannan Lundin

The People’s Republic of China (PRC) is currently promoting indigenous technology development through support of Chinese firms and, arguably, by restricting operations of foreign multinational firms. This policy seems to overlook the impact of foreign firms on technology development in local firms. For instance, technology might leak out to local firms though spillovers. Moreover, competition from foreign firms might force local firms to engage in technology development. We examine the impact of foreign direct investment (FDI) on technology development in the PRC. We start by surveying a large and growing literature on FDI and spillovers in the country. Most previous studies find evidence of positive spillovers. We then continue to examine the effect of FDI on competition in the Chinese manufacturing sector and the effect of competition on firms’ research and development (R&D). Our analysis is conducted on a large dataset including all large- and medium-sized Chinese firms over the period 1998–2004. Our results show that FDI increases competition but there are no strong indications of competition affecting investments in R&D.

Sjöholm, Fredrik and Nannan Lundin (2013), "Foreign Firms and Indigenous Technology Development in the People’s Republic of China". Asian Development Review 30(2), 49–75.

Fredrik Sjöholm


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Institutional Reform for Innovation and Entrepreneurship

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The authors of this book, Niklas Elert, Magnus Henrekson and Mikael Stenkula, advise the economies of the European Union to become more entrepreneurial in promoting innovation and economic growth. The authors propose a reform strategy with respect to several aspects to achieve this goal.


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