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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：
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