The Effect of Outward FDI on Capabilities of Sustained Innovation: Evidence from China

Yunxin Ye and Shiyong Zhao ()
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Yunxin Ye: School of Business, Macau University of Science and Technology, Macau 999078, China
Shiyong Zhao: School of Business, Macau University of Science and Technology, Macau 999078, China

Sustainability, 2023, vol. 15, issue 5, 1-17

Abstract: Based on theoretical analysis, this paper examines the impact of China’s outward foreign direct investment on regional capabilities of sustainable innovation. Empirical tests are used to analyze the mechanism of OFDI in regional capabilities of sustainable innovation. OFDI’s impact on sustainable innovation is tested through the fixed effect, mediation effect, and threshold effect models by using provincial panel data from 30 provinces in China from 2008 to 2019. The results show that OFDI promotes regional capabilities of sustained innovation. Moreover, the effect of OFDI on sustainable innovation is found to be mediated by regional human capital accumulation. Furthermore, this study also finds that regional absorptive capacity and financial market development are two significant threshold variables in the process by which OFDI affects sustainable innovation. Before the threshold variables exceed the threshold level, OFDI encourages sustainable innovation, but this positive association becomes stronger after threshold variables reach the threshold level. The results have strong policy implications, which will be useful for local governments to make policies with the aim to maximize the benefits of OFDI and encourage sustainable innovation.

Keywords: outward foreign direct investment (OFDI); sustainable innovation; human capital accumulation; absorptive capacity; financial market; China (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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