Productivity spillovers from R&D, exports and FDI in China's manufacturing sector

Abstract

This paper assesses productivity spillovers from R&D, exports and the very presence of foreign direct investment (FDI) in China's manufacturing sector, based on a panel of more than 10,000 indigenous and foreign-invested firms for 1998–2001. There are positive inter-industry productivity spillovers from R&D and exports, and positive intra- and inter-industry productivity spillovers from foreign presence to indigenous Chinese firms within regions. OECD-invested firms seem to play a much greater role in inter-industry spillovers than overseas Chinese firms from Hong Kong, Macao and Taiwan within regions. The findings have important managerial and policy implications.

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Figure 1

Notes

  1. 1.

    Large-sample firm-level studies for China are very rare, and Hu and Jefferson (2002) is an exception, where firm-level data in the electronic and textile sectors for 1995–1999 are used.

  2. 2.

    International R&D spillovers across groups of countries are detected by such studies as Coe et al. (1997), Engelbrecht (1997), Lichtenberg and van Pottelsberghe de la Potterie (1998), Coe and Hoffmaister (1999), and van Pottelsberghe de la Potterie and Lichtenberg, (2001). However, other macro-level studies such as Kao et al. (1999) do not find evidence of international R&D spillovers. More recently, Luintel and Khan (2004) argue that many previous panel data studies do not allow for the possible heterogeneity of knowledge diffusion across countries. Based on the belief that countries differ in their stage of development, openness and stock and intensity of R&D, Luintel and Khan (2004) have carried out a country-level study and found a diversity of spillover parameters across a group of 10 countries.

  3. 3.

    Information is available upon request.

  4. 4.

    We thank one referee for suggesting this.

  5. 5.

    The measure of value added for exporting firms may suffer from some bias in China. Since 1994 China has revised its VAT refund policies for exports from time to time, in terms both of methodologies and of refund rates. In addition, not all products are entitled to receive a full VAT refund for exports (see, e.g., Guo, 2003). Given these practices, our measure of value added is unable to precisely reflect these refunds. Therefore caution must be exercised when the results are interpreted.

  6. 6.

    We are grateful for this suggestion by one referee.

  7. 7.

    The coefficients on the interaction terms of R&D, LL and LK with industrial dummies are not reported because of space limitation, but are available upon request.

  8. 8.

    Up to 1998, FDI from Hong Kong alone accounted for about 44% of total inward FDI stock in China (Wei and Liu, 2001: 23).

  9. 9.

    A detailed table for these estimated results is not provided because of space limitations, but is available upon request.

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Acknowledgements

We thank anonymous referees and the JIBS Departmental Editor, José Manuel Campa, for their very constructive comments on our earlier drafts.

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Correspondence to Y Wei.

Additional information

Accepted by José Manuel Campa, Departmental Editor, 12 October 2006. This paper has been with the author for two revisions.

Appendix: Measurement of variables

Appendix: Measurement of variables

Y :

Value-added

K :

Physical assets

L :

The number of employees

RD:

The ratio of a firm's intangible assets to its fixed assets

EX:

The ratio of a firm's exports to its sales

RDSP:

The ratio of intangible assets held by all other firms (the firm's own intangible assets are excluded) to fixed assets in an industry, in a region, or in an industry within a region.

EXSP:

The ratio of exports by all other firms (the firm's own exports are excluded) to sales in an industry, in a region, or in an industry within a region.

FDISP:

The share of foreign-owned firms' capital in total capital in an industry, in a region, or in an industry within a region.

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Wei, Y., Liu, X. Productivity spillovers from R&D, exports and FDI in China's manufacturing sector. J Int Bus Stud 37, 544–557 (2006). https://doi.org/10.1057/palgrave.jibs.8400209

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Keywords

  • R&D
  • exports
  • FDI
  • productivity spillovers
  • China