Foreign Direct Investment, Access to Finance, and Innovation Activity in Chinese Enterprises

Posted: 7 Jul 2008

See all articles by Sourafel Girma

Sourafel Girma

Nottingham University Business School

Yundan Gong

Nottingham University Business School

Holger Görg

University of Kiel; Kiel Institute for the World Economy

Date Written: 2008

Abstract

A recent, comprehensive database is used to investigate the link between inward foreign direct investment (FDI) and innovation activity in China. The results of the analysis suggest that private and collectively owned firms with foreign capital participation and those with good access to domestic bank loans innovate more than other firms do. Among enterprises not owned by the state, inward FDI at the sectoral level is positively associated with domestic innovative activity only among firms that engage in their own research and development or that have good access to domestic finance. At the sector level the effect of inward FDI into technology transfer is distinguished from the effect on domestic credit opportunities. FDI affecting credit is of little significance for state-owned enterprises and is independent of their access to finance. In contrast, better access to credit is an important channel through which FDI affects the innovation of domestic private and collectively owned enterprises.

Keywords: O31, F23, G32

Suggested Citation

Girma, Sourafel and Gong, Yundan and Gorg, Holger, Foreign Direct Investment, Access to Finance, and Innovation Activity in Chinese Enterprises (2008). The World Bank Economic Review, Vol. 22, Issue 2, pp. 367-382, 2008. Available at SSRN: https://ssrn.com/abstract=1156199 or http://dx.doi.org/lhn009

Sourafel Girma (Contact Author)

Nottingham University Business School ( email )

Jubilee Campus
Nottingham, NG8 1BB
United Kingdom
+44 0 115 8466656 (Phone)

HOME PAGE: http://www.nottingham.ac.uk/~lizsmg/

Yundan Gong

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham NG8 1BB
United Kingdom

Holger Gorg

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

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