Multinational Corporations and Technology Transfers in Developing Countries

Technology and innovatory capabilities are key sources of competitive strength for firms and countries. As a developing country, China seems to build its capabilities for technology and innovation through foreign direct investment (FDI) by multinational corporations. Do multinational corporations transfer technology? While the topic is quite important, the quantitative analyses on the issue in the literature have been limited. This paper attempts to close the gap by empirically investigating the issue with the Chinese industrial data. The estimates indicate that the Chinese industries benefit from the presence of FDI mainly from spillovers and no obvious technology transfers are made directly from multinational corporations. The results also suggest a key role of an industry’s absorptive capability in capturing potential benefits from FDI.