Download FDI and Domestic Enterprise Innovation in Western China

FDI and Domestic Enterprise Innovation in Western China
ZHOU Bing
Accounting School, Chongqing Technology and Business University, P.R.China
[email protected]
Abstract: With the development of the West Development, Foreign Direct Investment ( FDI ) tends to
gradually increase in China. FDI will not only influence the flow capacity of interregional capital , but
also will in turn lead to influence firms on the capacity of innovation with the flow of capital and
technique among states or regions .Meanwhile ,many have concerns that FDI is of advantage to improve
the incentive and capacity of innovation .Competing with FIEs in the same market , domestic enterprises
could prevent themselves from falling behind technologically by increasing the indigenous capacity for
technical innovations. The paper is an investigation of the hypothesis by compiling a panel data set in
west areas covering the years of 2004-2008. The paper analyses the impact of FDI on the indigenous
capacity for technical innovations. Our empirical tests reject the above hypothesis. To the contrary, we
found FDI negative correlate to the self-innovation of western areas of China.
Keywords: FDI, Innovation, Western China
1 Introduction
On relationship between FDI and innovation, many domestic scholars and abroad have been researching
from different points of view. MacDougall (1960) firstly proposed FDI affect spillover of tech on host
nation by using comparative static analysis. Haksar’s (1995) test shown the spillover effect FDI made is
far lower than that of local R&D. Tim Craig (1997) argued FDI aiming at gaining profit must have
ability of tech diffusion. Lucio Biggiero (2002) from the angle of biography and medicine suggested the
most fundamental rule of FDI is to produce “spillover effect”. Alejendo Ciruelos & Miao Wang (2005)
used data from 57 countries covering 1988-2001and found FDI played the role of being channel for tech
transferring among countries as trade did and the effect varies according to different places. By
contrast, some researches to developing countries show the opposite result. Kathak (1989) use method
of production function and found the effect of tech spillover only exist in high-tech industry. Blomstrom
(1989), Haddad and Harrison (1993), Goldan (1994) Haksar (1996) developed the same result by testing
Mexico, India and Morocco. In China, with great inflow of foreign capital, the effect it made has been
noticed broadly by theoreticians. Kun-rong Shen (1999) took cross section analysis on the relationship
between all-element productivity and aggregate FDI of 29 provinces(cities) in 1996, and found the share
of FDI in GDP increased by 1% and production 0.37% accordingly. Shen and Geng (2001) concluded
plentiful inflow of FDI not only alleviate the capital scarce of host nation among developing countries
and accelerated pace of internationalization ,industrialization and marketability of national economy,
and improved efficiency of tech and level of organization. Hong-ling Wang, Dao-kui Lee, Jun-xin Feng
(2006), after taking regression analysis of the relationship between FDI and self-innovation covering 37
industries, found FDI could promote innovation of domestic firms.
But some scholars holding opposite opinion. Hui juan Cheng (2002) used multi-variable OLS and found
that the inflow of FDI to the increase of developed countries is more obvious than that of developing
countries. Tao-tao Chen (2003) believed spillover will happen only when there is a little disparity
between domestic and abroad companies. Hai-yang Zhang (2005) took analysis of absorbing capacity of
R&D of China industrial department using panel data, and the result is that domestic corporations didn’t
absorb the advanced technique, instead it produced obvious inverted tech-diffusion in high-tech industry.
Besides that above, the tech improvement is mainly from self-innovation and still fall behind abroad
peers. Min-Leng (2005) suggested even if the inflow of FDI led to somewhat improvement of host
nation, it didn’t mean the tech improvement of local enterprises and national companies. Nowadays,
majority of scholars believed that FDI could promote R&D capacity of China companies. Others
thought otherwise. Because of the unbalance of China economy, it can be seen that the effect of FDI
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varied according to areas. Up to now, there has been no systematic research on whether or not FDI put
positive impact on innovation of western domestic enterprise. In the following analysis, we’ll use panel
data set of eleven provinces in western China from year 2004 to 2008 and discussed the relationship
between FDI and innovation.
2 Model
In order to grasp the foreign direct investment (FDI) effect on innovation of domestic-funded enterprises
in the western region from individual and overall, we use entity fixed effects regression model and time
and entity fixed effects regression model to analysis the relationship between western FDI and the
innovation of western enterprises with quantitative analysis.
1. Entity fixed effects regression model:
DEIit =αi +β1× FDIit+β2×DESit+εit,
2. Time and entity fixed effects regression model:
DEIit =αi +γt +β1× FDIit+β2×DESit+εit,
The variable subscript i indicate different province, regions and municipalities, t indicate different
years.αi is a random variable, it indicate that different provinces have i different drift, and the change of
which have something to do with foreign direct investment FDI and domestic enterprise sale revenue;
DEI means The domestic enterprises’ ability of innovation; DES means domestic enterprise sale
revenue ;γt is a random variable, which indicates T sections have T different drift, and change of have
something to do with the foreign direct investment FDI and domestic enterprise sale revenue,εit is items.
The β1 above is the most important parameters ,if the β1 is positive ,it means that the increase of foreign direct
investment FDI improve the capability of innovation of domestic enterprises; If b1 is negative, it means
that the increase in foreign direct investment FDI inhibit our domestic enterprises’ ability to innovate.
3 Samples and Data
The first step of statisticsing analytical is the right selection of sample, we should follow with the
comprehensive, system, science principle in selecting examinations and collecting data. For the sake of
better analytical western FDI with inside property the enterprise innovation relation, we select by
examinations of the data is region in the west from year 2004 to 2008. It takes province as unit,
including Xinjiang, Guizhou, Guangxi Sichuan and so on. In order to statisticsing caliber and other
region existence difference Tibet, the data can't acquire, so do not bring into range of research. All data
samples all come from above-mentioned eleven provinces.
Supporting the enterprise innovation ability can from technology activity devotion and obtain of
innovation result this both side to measure, From devotion, including: The people R & D scientist and
engineer count, the devotion of the R & D budget expenditure of the science, technology movable
financial power and GDP comparison, the R & D budget expenditure have product sales income specific
weight. From produced, including: Ten thousand employment invent patent authorization quantity, new
the product sales income have product sales income specific weight, high and new technique industry
increment value rate. The index sign which concretely changes a quantity selection changes quantity and
it explains to see table 1.
variable
RS
JF
ZL
signification
Table 1: Index and it explains
variable
signification
The myriad people R & D scientist and
engineer count
the R & D budget expenditure of the
science and technology movable
financial power and GDP comparison
Ten thousand employment invent
TR
the devotion, the R & D budget expenditure of
the science
JFP
the R & D budget expenditure have product sales
income specific weight
XPP
new the product sales income have product sales
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patent authorization quantity
GXP
income specific weight
high and new technique industry
increment value rate
XR
inside property enterprise sales income
4 The Result and Analysis:
After doing Levin, lin chu unit root test to panel data, we obtain the model result which from FDI to
input, output and difference of different province of innovation. Look at the table 2, table 3, table 4; the
goodness of fit equation is more than 80%, which indicate a strong ability to explain. Most of the D-W
near 2, indicating that there is no obvious correlation between the explanatory variable, and another, all
the statistic passed the test, which shows a relatively strong reliability of the model.
According to the influence of the input of innovation of western enterprises (from Table2), there is no
significant improve in ability of innovation of domestic enterprises , instead, inhibition of the domestic
enterprises to improve the capability of innovation. If the percentage point of foreign direct investment
(FDI) increase one percentage, the number of scientists and engineers in R&D will decrease from
0.025%, the funds of technology will decrease from 0.022%, the expenditure of R&D and ratio of GDP
will drop from 0.02%, and R&D expenses accounted for the proportion of revenue of product sales will
fall from 0.003% in the same time. According to this, the entrance of foreign capital enterprises will
reduce the investment of R&D of enterprises in the western parts, and influence the growth of capability
of innovation, which in reality have got progress than ever before, it just is due to the growing income of
sales. The growth of sales of domestic enterprises has improved the capacity of R&D.
Table 2: The FDI’s influence on the input of innovation of western enterprises
ln(RS(-1))
ln(TR)
ln(JF)
ln(JFP)
ln(FDI
)
ln(XR)
-0.025***
-0.017**
-0.022***
-0.016***
-0.020**
-0.026**
-0.003***
-0.021**
0.21*
-0.74**
1.05***
0.76*
0.55***
0.87***
-0.006*
0.323*
model
Entity fixed
effects
regression
model
(model 1
Time and
entity fixed
effects
regression
model
model2
0.99
Entity fixed
effects
regression
model
(model 1
Time and
entity fixed
effects
regression
model
model2
0.95
Entity fixed
effects
regression
model
(model 1
Time and
entity fixed
effects
regression
model
model2
0.91
Entity fixed
effects
regression
model
(model 1
Time and
entity fixed
effects
regression
model
model2
0.91
）
R2
0.98
（
）
）
0.95
（
）
）
0.95
（
）
）
0.90
（
）
F-statis
200.65
198.45
57.56
48.79
57.98
47.21
65.47
65.24
tic
Note: * Indicates a significant 10% level; ** indicates a significant 10% level; *** indicates 1% significant level;
Ln means take logarithm.
According to the influence of the output of innovation of western enterprises(from Table3), If the
percentage point of foreign direct investment (FDI) increase one percentage, the patents volume will fall
0.016%, the revenue of new product sales will increase from 0.07%, and Add-Value Rate of high-tech
industries will drop 0.004 units. Except the revenue of new product sales , the other indicates are also
inhibitory to the output of western enterprises’ innovation. Meanwhile, if the percentage point of
domestic enterprises’ sales increase one, the volume of patents will increase 0.43 percentage point, the
revenue of new product sales will rise0.67%, and Add-Value Rate of high-tech industries will increase
0.32. Then, this will be the same with the above analysis, that the increase in FDI will reduce the ability
of innovation of western enterprises, and the ability of innovation of domestic enterprises will be
inhibited by FDI.
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Table 3: The FDI’s influence on the output of innovation of western enterprises
ln(ZL)
ln(XXP(-1))
GXP
ln(FD
I)
ln(XR
)
medol
R2
-0.016**
-0.09*
0.07***
0.011**
-0.004*
-0.003***
0.43***
0.21***
0.67***
0.73**
0.32**
0.22*
Entity fixed
effects regression
model
(model 1
0.91
Time and entity
fixed effects
regression model
model2
0.90
Entity fixed
effects regression
model (model
1
0.91
Time and entity
fixed effects
regression model
model2
0.90
Entity fixed
effects regression
model
(model 1
0.87
Time and entity
fixed effects
regression model
model2
0.89
）
（
）
）
（
）
）
（
）
F-stati
20.8
98.45
37.0
45.30
46.21
44.38
stic
Note: * Indicates a significant 10% level; ** indicates a significant 10% level; *** indicates 1% significant level;
Ln means take logarithm
.
5 Conclusion
Actually concerning that innovation ability from the foreign direct investment (FDI) to the western
domestic enterprise is in the promoter action or in the inhibitory action, this paper through the research,
supports "the suppression theory": Namely that increase of the foreign direct investment (FDI) has
suppressed the innovation of the western area domestic enterprise. Analyzing through above, we
discovered that regardless of infection of investment of domestic capital enterprise to innovation or
output of the domestic capital enterprise to innovation, the foreign capital’s activity all does not have the
promoter action to it, but is the inhibitory action. But the investigation discovered that the enhancement
of the domestic capital enterprise's sales income is advantageous to the enterprise's innovation. This
indicated that the western area innovation mainly depends upon own scale size.
Therefore, according to the western domestic capital enterprise’s innovation, that the foreign direct
investment’s technology is more advanced is by no means better. On introducing foreign direct
investment, it must be act according to circumstances, and does what one can.
Author’s brief:
Bing Zhou: Male, Researcher of Research Center of The Economy of The Upper Researches of The
Yangtze River of Chongqing Technology and Business University; Researcher of Industry Academe of
Chongqing Technology and Business University ;Vice-Dean of accounting school; Main Research
Direction for Applied Economics; Email:[email protected].
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