The Impact of FDI on Domestic Firm Innovation: Evidence from Foreign Investment Deregulation in China

This paper studies the impact of foreign direct investment on domestic firms’ innovation in China. It provides causal evidence by exploiting China’s deregulation 2002 and employs a difference-in-difference estimation strategy. Using matched firm-patent data set from 1998 to 2007, results show that quantity quality benefit investment. Moreover, emphasizes importance knowledge spillover similar technology domains. The analysis examines role horizontal technologically close industries—industries share findings industries generates much bigger positive spillovers than also shows domains is not driven input-out linkages. effect stronger cities with higher human capital stock firms absorptive capacity.