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An Empirical Analysis of the Technology Transfer from FDI in China Chen Tiejun College of Business and Administration, Zhejiang University of Technology, Hangzhou China Abstract: A major objective of China’s attracting FDI is to absorb advanced technology. Whether or not to realize the aim depends on the effects of technology transfer through inward FDI. This paper uses panel data to test the relationship between the technology transfer behaves of multinational enterprises and macro level economic factors in China. The results suggest that GDP per capita, market structure, R&D expenditures and the degree of openness have significant influence on the decision of technology transfer of multinational enterprises invested in China. It is critical for China’s economic development to adopt appropriate policy to speed up technology transfer from inward FDI. Keywords: Technology transfer, FDI, Chinese economy 1 Introduction FDI has been playing an increasingly important role in China’s economy, which rose after reform and opening, began to increase rapidly. One of the targets in importing FDI is to absorb advanced technology. It has been proved that FDI has great effect on facilitating china’s technology development. But the result is unsatisfactory so far. FDI has different effect in different stage since the China’s opening up. Especially the import and absorption of technology has great difference in China’s economy .So we must pay attention to utilize our advantage entirely, give play to the government's function appropriately, accelerate the technology transfer, expand the range of technology transfer promote the economy development. Writer structure a theory model which analyses technology transfer behavior of MNC on the base of the relevant studied documents. Based on literatures on this topic, the paper analyses the effects of various elements on the behaviors of MNC’s technology transfer in terms of empirical research. Then the paper introduces some possible development strategies on how to accelerate technology transfer by FDI in china. , 2 Theoretical Model After the assessment of series realistic factors, we reach a decision on how to maximize the profit through dominating the way, level, speed of the technology transfer through the FDI. Different economic factors have different effect on the technology transfer. But they link each other together. So the realization of technology transfer is a more complicated course. It involves in the multi- ingredients and multi- participations. Transfer Ability Transfer Channels Restrict or Encourage Absorb Will Government of Home Country Transferor Technology Receiver Government of Host Country Transfer Will Transfer Channels Restrict or Encourage Figure 1: the Model of Technology Transfer 147 Absorb Ability MNC will consider the elements which can improve the level of profits in many aspects while determining whether to transfer technology. It not only ponders the benefit produced by technology itself, but the influence of macro environment of host country. Technology transfer may danger one's own market such as producing new rival or impact on its global strategies, etc. MNC are the behavior subjects realized in technology transfer of FDI. The essence of enterprises determines that the profit maximizes is their final goal of global management strategy under the market economy environment. Technology transfer is the important means that MNC fully utilizes their technology advantage to realize the goal of overseas investment. It is a kind of market behavior for MNC to realize the goal of profit maximization. So we can propose the theory model of technology transfer to analyse the behavior of FDI. It is the final goals of all MNC business activities to maximize their profit. The realization of profit maximization can display in many aspects of MNC’s overseas efforts. Support its production abroad, maintain its monopoly position on the market, fully utilize resources of the host country, etc, which are affected by the market scale of host country, structure state of market, technological level and policy environment together with technology transfer. Supporting the Production of Abroad The Market Scale The MNC’s Target Maintaining the Monopoly Status of profit Fully Utilizing the Resource maximi -zation Market Structure MNC’s Technology Technology Level Transfer Policy Environment Figure 2: the Analysis Model of MNC’s Technology Transfer First, MNC’ technology transfer behavior is a kind of market behavior. It must be affected by environmental factor of the market, which reflects in the market demand and influence that multinational corporation changes, etc. in the market structure of of host country mainly. The market environmental factor affects the subjective will of MNC’s technology transfer. Secondly, MNC’s technology transfer is realized by enterprises finally under the market environment of host country, which must be influenced by digesting technological ability by enterprises of host country from the micro aspect. It is obvious that the technology level of host country influences mostly the actual effect of technology transfer. From the macroscopic view, the policy environment of host country must affect technology transfer. The most important macroscopic factor is the Policy environment, which may influence every aspect of technology transfer of FDI directly. Certainly it will influence technology transfer of FDI indirectly through acting on other factors. The realistic influence factor is always intricate. In order to analyses further that the function of impact on FDI technology transfer of every factor in models. We will utilize the investment practice in our country of MNC to have the empirical inspection. 3 Empirical analysis 3.1Panel Data Model To empirical test the influence of factors we raise the test function: Unitary Function: FT= M FT= C FT= T FT= Multianalysis Functon FT= M C T P £( ), £( ), £( ), £(P) : £( , , , ) 148 ① , , , FT is the variable to scale MNC’s technology transfer behavior. The letters “M” “C” “T” “P” separately refer to the market scale, market structure, technology level and policy environment of the host country. The thesis chooses the panel data model which includes cross section data model and time sequence data model because that the huge scale of FDI’s inflowing was mainly after 1992 and the statistic data about technology of FDI is very few. The p FTit 1 M it 2 C it 3 T it 4 P it The market scale of a country can be reflects from the GNP of person. And the structure of a market refers to the competitive degree that the corporations face. If the proportion TRstate/TR of state corporation’s sale earning is small, the competition is more plenty, so we can see the status of the country’s market structure is better. The technology level usually is estimated from the input and output side, so we choose the R&D input to reflect the general technology level of each area. The factor of policy environment is a macro synthetical variable, it’s difficult to choose a direct variable. But the policy environment can be reflected from the opening degree, so we choose the trade opening degree (the trade amount /GDP) to replace. Then the formula FT = GNP of Person TRstate/TR R&D Trade Amount/GDP So, “FTit” refers to the technology transfer of the “i” area and the “t” year and “M it” “C it” “T it” “P it” separately refer to the GNP of person competition degree R&D input and trade opening degree of the “i” area and the “t” year of the host country. And i=1 2 3 … N t=1 2 3 … T. We assume that theβ1 β2 β3 andβ4 in the formula two are all constants to every area and all years. But the “α” of every area is different, so we need establish N virtual variable. The model can be said to Least Squared Dummy Variable Model LSDV that is Fixed Effect Model. 3.2 Data and Method In the panel data model the “N” equals to 30 the “T” equals to 3. the 30 areas includes Beijing Tianjing Hebei Shanxi Neimenggu Liaoning Jilin Heilongjiang Shanghai Jiangsu Zhejiang Anhui Fujian Jiangxi Shandong Henan Hubei Hunan Guangdong Guangxi Hainan Chongqing Sichuan Guizhou Shanxi Gansu Ningxia Yunnan Qinghai and Xinjiang. The data come from “China Statistical Yearbook ” and “China Statistical Yearbook on Science and Technology” 2000 2001 2002 . The realistic factors are complicated and interactional. So we’ll first separately have the unitary linear regression, and then have the multianalysis. On the other hand, the empirical analysis choose three dependent variables (R&D Patents and Technology Items of FDI) because of no direct index to figure the behavior of technology transfer. 3.3 Results and Analysis Table 1: The Result of Unitary Linear Regression =α+β 和 +β £( anel data model is: +β +β , 、、 , 、 、 、 、 、 、 、 、 、 , 、 、 、 , 、 、 、 、 、 、 、 、 、 、 、 、 、 、 ( , , ) 、 、 、 Dependent Variable Predictors Per-GNP 2 R F Proportion of State Corporation Sales R2 F R&D Input FDI’s R&D Input ( ) FDI’s Patents ( ) FDI’s Technology Items ( .820 13.428 .589 6.846 0.672 0.347 0.335 180.307 46.82 46.337 -.321 -.330 -.358 (-3.177) (-3.283) .579 6.659 0.330 0.323 20.09 20.78 22.95 ( ) 0.436 149 (4.546) ) (-3.599) 0.321 0.496 5.355 ) ① will change to: ) ③ , 、 、 、 ,,, , ; ,,, , , , 、 , ( ② 0.577 (6.632) R2 F The Opening Degree R2 F 0.446 0.336 0.533 28.67 20.67 43.97 ( ) 0.742 10.37 0.650 107.54 ( ) 0.789 12.055 0.623 105.318 ( ) 0.838 14.389 0.702 207.05 The R would be lower in the panel data model because it includes the cross section regression. The results (R ›0.3) show a better consistency. And the result refuses the suppose that coefficient is zero as the values of “T” all exceed 1.98.It shows the positive relation between the FDI’s technology transfer and the market scale、technology level and policy environment of the host country, and the 2 2 negative relation between the FDI’s technology transfer and the market competition of the host country. The values of “F” all exceed 3.95. So we can say that the market scale, market structure, technology level and policy environment of the host country are all separate and marked explaining variables. Table 2: The Result of Multianalysis Dependent Variable Predictors FDI’s R&D Input FDI’s Patents (Constant) -28.897 -.848 ( ) -.034(-.326)* -.016(-.221)* .153(2.695) .782(7.110) 8.979 .082 ( ) -.162(-1.883)* -.046(-.758)* .214(3.369) .835(9.208) -165748.431 -4.403 R2 .625 .745 .724 F 35.485 62.201 55.673 Per-GNP Proportion of State Corporation Sales R&D Input The Opening Degree FDI’s Technology Items ( .614(6.863) .053(.836)* .148(2.241) .221(2.340) ) In the multianalysis, the consistency is better. But the variables of market scale and market structure are refused in the table * sign .So the result shows: first, technology level and policy environment of the host country are important factors to affect the technology transfer of FDI. And there are correspongdingly unattached. Secondly, the higher of the technology level and the finer of the policy environment of the host country the MNC would transfer more technology. Lastly, the refusing of the factors market scale and market structure can’t deny their functions. One side that the influence of the two factors has been testified during the unitary linear regression, and on the other hand, it is the interaction leads to the refusing. The practice in China of FDI have indicated that they transfer technology to China is the result of the attraction of huge market scale and the competition. It’s difficult to clearly divide the two factors affections. But this happen proves that different factors are interactional. ( Ⅱ“” ) 4 Conclusions Using panel data model, this paper examines the effects of market scale, technology structure and level, and policy environment on the foreign companies’ technology transfer. Empirical results for China suggest that the behavior of foreign companies’ technology transfer is the results of various economical elements. The market scale determined by the national economy is the leading factor to promote MNC’ technology transfer. When MNC enter the Chinese market ,they brought a large amount of advanced and ripe technology. The empirical evidence shows that the market scale determined by the national 150 economy is a prominent factor to promote MNC’s technology transfer. After MNC occupy certain market share of host country rapidly relying on their technology advantage, the market competition state of the host country becomes the direct factor of impelling the foreign businessman to transfer technology progressively. Since 1990s, MNC have poured into the Chinese market, which not only caused vying each other but offered competition pressure and exemplary role for similar enterprise of host country, making the host country's competition improve obviously. Due to the characteristic of the public products of technology and the obvious positive external economy effects of technology transfer, the host country will not impel the emergence and diffusion of the technology transfer unless implement certain policies and measures. The policy environmental impact on FDI technology transfer will be the most direct and profound.With the change of the world, domestic economy environment and gradual promotion of China's reform and opening-up, it has already impractical to depend on the methods of the preferential policy and mandatory condition simply. Policy should serve the good management environment. Also set up the powerful policy system to boost MNC's technology transfer progressively through establishing and improve system of relevant law, optimizing the policy environment. The multi-variable regression equation shows that these economical elements are not independent, but interdependent and interactional, especially in the case of market scale and structure. These elements jointly promote the technology transfer of FDI. References: References: [1] Alan M. Rugman, Internationalization as a General Theory of Foreign Direct Investment: a Re-Appraisal of the Literature, Weltuirtschaftliches Archiv, V116, 1980, pp.365~379. [2] Buckley, P, and Casson, M, 1976, “The Future of Multinational Enterprises,” London: Macmillan. [3] Braunerhjelm, P.n K.Ekholm, L. Grunderg, P. Karpaty (1996), “Host Country Characteristics and Agglomeration in Foreign Direct Investment”, Applied Economics, 28:833~40. [4] Dermot McAleese, Economics for Business: Competition, Macro-stability and Globalization, Pearson Education Limited 2001. [5] Dunning, J H, ed., 1974, “Economic Analysis and the Multinational Enterprises”, London: George Allen &Unwin Ltd. 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