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We use the provincial data from 1995 to 2000 to test the impact of inward FDI on innovation activity in China. We found a positive effect of FDI on the number of patent applications filed by the domestic firms. This positive relationship persists when we divide the patents by types (invention, utility model and external design) and when we group the provinces into regions (the coastal, central, and the western regions). This positive spillover effect is much stronger for minor innovations such as external design and utility model, highlighting a "demonstration effect" of FDI. However, FDI into the coastal region has a negative effect on invention, which indicates a "crowding-out" effect of imported technology on domestic innovation in that region. The effects of technical development personnel/expenses and the export/output share of FDI firms are also significant and positive.


CAPS Working Paper Series No.132 (16/02)

Recommended Citation

Cheung, K. Y. (2002). Spillover effects of FDI on innovation in China : an analysis of provincial data (CAPS Working Paper Series No.132). Retrieved from Lingnan University website: