The Impact of FDI on Local Innovations in China

Abstract

Innovation and Foreign Direct Investment (FDI) are two major sources of economic growth. The State Council’s executive meeting urged further taking forward the nationwide initiative spurring innovation to unleash social creativity. Empirical studies of FDI effects on innovation with prefectural data are rare, this paper uses prefectural data to analyze the impact of inflow FDI on domestic innovative activities in China. Using panel data of 13 cities in Beijing-Tianjin-Hebei Urban Agglomeration from 2011 to 2018, this study finds that the scale of FDI has a significantly positive effect on local innovation. Also, the result shows that the higher entry pace of FDI brings a negative effect on innovation of domestic enterprises.