What Determines Technological Spillovers of Foreign Direct Investment: Evidence from China

Galina Hale () and Cheryl Long ()
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Cheryl Long: Colgate University

Working Papers from Economic Growth Center, Yale University

Abstract: Using the World Bank survey of 1500 firms in five Chinese cities, we study whether the presence of foreign firms produces technology spillovers on domestic firms operating in the same city and industry. We find positive spillovers for more backward firms. We analyze the channels of such spillovers and find that the transfer of technology occurs through movement of high-skilled workers from FDI firms to domestic firms as well as through network externalities among high-skilled workers. Moreover, these two channels fully account for the spillover effects we find, which demonstrate the importance of well-functioning labor market in facilitating FDI spillovers. Insofar as our results can be generalized to other countries, they reconcile conflicting evidence found in other studies.

Keywords: Foreign direct investment; technological spillovers; labor mobility; network externalities; China (search for similar items in EconPapers)
JEL-codes: F2 O1 O3 J2 J6 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cna, nep-dev, nep-ino, nep-net and nep-tra
Date: 2006-04
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Persistent link: http://EconPapers.repec.org/RePEc:egc:wpaper:934

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