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Impact of Foreign Direct Investment on Regional Innovation Capability: A Case of China

Foreign direct investment (FDI) has been traditionally considered an important channel in the diffusion of advanced technology. Whether it can promote technology progress for the host country is a focused problem. This paper analyzes the relationship between FDI and regional innovation capability (RIC). We find that the spillover effects of FDI are not as signif- icant as it is usually thought. It is found that the impact of FDI on RIC is weak; the entry of FDI has no use for enhancing indigenous innovation capability. Moreover inward FDI might have the crowding-out effect on in- novation and domestic R&D activity. The research manifests that increasing domestic R&D inputs, strengthening the innovation capabilities and absorp- tive capacity in domestic enterprises are determinants to improve RIC.