Linking Inward Foreign Direct Investment to Innovative Entrepreneurship: The Mediating Role of Economic Institutions in Chinese Regions

Na Liu and Moon-Gyu Bae ()
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Na Liu: Department of International Economics and Business, Yeungnam University, 280 Daehak-Ro, Gyeongsan 712-749, Republic of Korea
Moon-Gyu Bae: Department of International Economics and Business, Yeungnam University, 280 Daehak-Ro, Gyeongsan 712-749, Republic of Korea

Sustainability, 2025, vol. 17, issue 10, 1-20

Abstract: This study examines the influence of inward foreign direct investment (IFDI) on innovative entrepreneurship across 30 Chinese provinces and three regions (eastern, central, and western). Using nine years of panel data (2010–2018) and a fixed-effects model, we demonstrate that economic institution is a pivotal link connecting IFDI and innovative entrepreneurship. Our findings reveal that marketization exerts a significant partial mediating effect in eastern China, but this mediating role is not evident in the central and western regions. These results underscore the importance of regional institutional development in maximizing the potential spillover effects of IFDI. To optimize these spillovers, China should adopt regionally differentiated strategies to enhance economic institutions and foster the robust growth of domestic innovative entrepreneurship. This study also offers valuable implications for other developing economies by offering valuable implications for constructing a high-quality, open institutional framework that promotes inclusive and sustainable development.

Keywords: absorptive capability; China; inward FDI; innovative entrepreneurship; spillover effects (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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