FDI, Geographical spillover effects and Chinese Cities’ Innovation Capability

This paper explores the influences of Chinese cities’ FDI on their innovation capability, based on the panel data of 262 Chinese cities from 2001 to 2016. We distinguish FDI’s spillover effects on the innovation capability between the effects of a city’s own FDI (technological spillover effects) and the effects of other cities’ FDI (geographical spillover effects). With the fixed effects model, we find that FDI has insignificant technological spillover effects and even negative geographical spillover effects on the innovation capability of “noncentral cities”. However, the innovation capability of “central cities” can benefit from both their own FDI and the FDI of other cities, no matter the FDI of other “central cities” or the FDI of other “non-central cities”.