The impact of FDI on regional technological capabilities: evidence from China

Purpose – Whether foreign direct investment (FDI) can promote technology progress in the host country, or not, has become an issue in recent decades. The purpose of this paper is to analyze the impact of FDI on regional technological capabilities. Design/methodology/approach – This paper first analyzes the spillover effects of FDI with reference to actual conditions in foreign‐funded enterprises in China, then uses correlation analysis and regression analysis to show the impact of FDI on technological capabilities. This paper compares the R&D expenditures in foreign‐funded enterprises and FDI origin countries between three typical regions – Shanghai, Jiangsu, and Guangdong – to show the influencing factors of spillovers. Findings – The impact of FDI on regional technological capabilities is found to be weak; FDI has little use for enhancing indigenous innovation capability. The regions with higher technological capabilities will attract the higher quality of inward FDI, and the powerful technological capabilities and abundant human capitals in domestic enterprises are essential factors to stimulate the spillover effects of FDI. Research limitations/implications – The arguments could be discussed more fully if an empirical model could be established to disclose the determinants of spillover effects. How to measure the spillover effects quantitatively is a key problem for future research. Originality/value – This paper discloses the mutual relationship between domestic and foreign‐funded enterprises. The findings in this paper provide some insights for both the host countries and the foreign investors.