FDI and Technological Upgrading in Chinese Cities: Externalities of Foreign Expansion Process and Industrial Structures

Abstract

Technological upgrading, as the key engine of Chinese economic development, does not take place in isolation, but is largely dependent on access to external knowledge sources. FDI has long been regarded as an external knowledge source because of its intra- and intercity technological spillovers. Meanwhile, both foreign expansion time-based characteristics and industrial structures could affect technological upgrading, but there is a heated debate about whether they enhance FDI spillovers in host cities. In this PhD thesis, I integrate these two streams of literature into a theoretical framework, and hope to investigate how foreign expansion time-based characteristics and industrial structures moderate both intra- and intercity relationships between inward FDI and technological upgrading in Chinese cities. Moreover, I link cluster theory to FDI spillovers, and establish a theoretical model in which government and market orientations can affect knowledge transfers and disseminations between domestic and foreign firms. Overall, this research aims to extend the existing literature by bridging literature of FDI spillovers, foreign expansion process, and industrial structures from a contingency perspective. It deepens our understandings about both intra- and intercity dimensions of FDI technological spillovers in explaining host city technological upgrading. Based on specific panel datasets from the Chinese Urban Statistical Yearbooks and the Annual Industrial Survey Database, I adopt Pooled OLS and Spatial Durbin Model to explore intra- and intercity externalities of foreign expansion process and industrial structures in FDI spillovers. My results indicate that FDI spillovers contribute to both intra- and inter-city technological upgrading in China. Irregular foreign expansion process diminishes FDI spillovers within a given city, but facilitates intercity knowledge dissemination. Cities with a high degree of related variety can reap benefits from FDI technological spillovers. However, such empirical results may change between different urban groups, Beijing-Tianjin-Hebei and Shanghai-Yangtze River Delta respectively. Therefore, the findings of this PhD thesis not only provide convincing evidence for the debate regarding the relationship between FDI and host city technological upgrading, but also highlight government and market orientations to assist with policy making in the future.