The Effect of Technology Spillover from FDI: An Empirical analysis of Chinese Manufacturing Industries

This paper examines the effects of technology spillover from FDI based on panel data analysis of Chinese large-scale domestic manufacturing industries. We use the panel data of 27 Chinese manufacturing industries from 2001 to 2007. We estimate technology spillover effects by two steps. First, we estimate the total factor productivity of domestic firms’ and foreign firms’ by Cobb-Douglas Production function. Second, we extend the previous studies to examine whether foreign firms give the effect of technology spillover to the Chinese domestic firms, and in this paper, Chinese 27 industries are classified into four different subclasses according to the levels of technology -highest, higher, lower and lowest level. Then we compared the effects of technology spillover in different industries’ technology level. The result indicates that foreign firms have positive effect of technology spillover on Chinese large-scale domestic firms, and these effects of technology spillover is seen to be centered on highest, higher and lower technology levels of industries.