Geographical FDI knowledge spillover and innovation of indigenous firms in China

Cassandra C. Wang and Aiqi Wu

International Business Review, 2016, vol. 25, issue 4, 895-906

Abstract: In recent decades, theoretical debate on firm innovation has considered particular forms of spatial clustering and foreign direct investment as almost mutually exclusive drivers. While cluster literature pays less attention to firm heterogeneity in ownership structure, FDI literature ignores the importance of geographical dimension in spillover effects. This study combines these two lines of theoretical inquiry to investigate regional FDI knowledge spillover effects on product innovation of China's indigenous electronic firms. It is found that localized innovative-related activities of foreign-invested firms significantly facilitate product innovation of domestic firms. However, FDI horizontal spillover is more important than vertical spillover and cross-sector rather than intra-sector knowledge is significant for indigenous innovation. FDI spillover effects can be reinforced by local innovative activities of domestic firms. This study highlights the significance of geographical proximity and relatively heterogeneous knowledge in FDI spillover effects on domestic innovation but questions the mutual trust relationship between foreign and domestic firms in a cluster.

Keywords: Geographical FDI knowledge spillover; Product innovation; Horizontal spillover; Vertical spillover; Electronics industry; China (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (51)

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DOI: 10.1016/j.ibusrev.2015.12.004

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