Financial development and the impact of FDI on firm innovation: Evidence from bank deregulation in China

Yeqing Ma, Yining Ni and Ning Meng

International Review of Economics & Finance, 2024, vol. 94, issue C

Abstract: This study investigates the role of financial development in shaping the relationship between FDI and firm innovation, based on Chinese firm-level dataset during 2008–2014. Our findings reveal that bank deregulation significantly enhances the positive effect of FDI on firm innovation. We also find that firms with greater absorptive capacity exhibit a more pronounced response to FDI while the absorptive capacity is enhanced by bank deregulation. These results underscore the importance of considering financial market conditions and highlight the role of absorptive capacity as a crucial channel through which bank deregulation influences the effect of FDI on firm innovation.

Keywords: Financial development; Bank deregulation; FDI; Firm innovation; Absorptive capacity (search for similar items in EconPapers)
JEL-codes: G28 O31 P34 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:94:y:2024:i:c:s1059056024003824

DOI: 10.1016/j.iref.2024.103390

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