Intra-Industry Knowledge Spillovers from Foreign Direct Investment in R&D: Evidence from a Chinese Science Park

Abstract

This study examines whether foreign direct investment generates intra-industry knowledge spillovers to domestically-owned firms, using firm-level panel data from a Chinese science park. Our analysis suggests that the R&D stock of foreign-owned firms has a positive effect on the productivity of domestic firms in the same industry, while the capital stock of foreign firms has no such effect. These results suggest that foreign firms' knowledge spills over within industries through their R&D activities, but not through their production activities. In addition, we find no evidence of spillovers from domestic firms or firms from Hong Kong, Macau, or Taiwan, suggesting that the size of knowledge spillovers is larger when the technology gap between source and recipient firms is larger.

Keywords: knowledge spillovers, foreign direct investment, R\&D activities, China

JEL Classification: F23, O12, O30