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The Impact of Foreign Direct Investment on Innovation: Evidence from Patent Filings and Citations in China

Yongmin Chen (), Haiwei Jiang, Yousha Liang and Shiyuan Pan

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies how foreign direct investment (FDI) affects innovation in the host country, using matched firm-level patent data of Chinese firms. The data contain multidimensional information about patent counts and citations which, together with an identification strategy based on Lu et al. (2017), allows us to measure innovation comprehensively and to uncover the causal relationship. Our empirical analysis shows that FDI has positive intra-industry effects on the quantity and quality of innovation by Chinese firms. We show that these positive effects are driven by increases in competition, rather than by knowledge spillover from FDI which is measured by patent citations between domestic firms and foreign invested enterprises (FIEs). We further investigate the inter-industry effects of FDI and find that FDI has positive vertical effects on innovation in upstream sectors.

Keywords: FDI; Innovation; Patent; Competition; Spillover (search for similar items in EconPapers)
JEL-codes: F2 L5 O3 (search for similar items in EconPapers)
Date: 2021-07-26
New Economics Papers: this item is included in nep-cna, nep-com, nep-cse, nep-fdg, nep-int, nep-ipr, nep-sbm and nep-tid
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Related works:
Working Paper: The Impact of Foreign Direct Investment on Innovation: Evidence from Patent Fillings and Citations in China (2021) Downloads
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