Science Research Management ›› 2019, Vol. 40 ›› Issue (11): 57-66.

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The dynamic threshold effect of OFDI on regional innovation ability

Jin Qiaohua, Yan Taihua   

  1. School of Economics and Business Administration, Chongqing University, Chongqing 400044, China
  • Received:2016-10-26 Revised:2018-11-01 Online:2019-11-20 Published:2019-11-25

Abstract:  With the acceleration of economic globalization, the technological progress of a country depends not only on domestic independent research and development investment, but also on international technology spillovers. With the increasing scale of China’s foreign direct investment, more and more scholars have begun to pay attention to the role of OFDI reverse spillover effects on domestic regional innovation capabilities. Foreign direct investment in a country often requires the support of multiple external institutional environments, among which the intellectual property protection is particularly important. Under the dual background of the increasing scale of China’s foreign direct investment and the continuous improvement of intellectual property protection systems in various countries, has foreign direct investment improved China’s regional innovation capability? Does intellectual property protection play a role as a booster in the process of OFDI promoting technological innovation capability? Studying the above problems is of great significance to the improvement of China’s technological innovation capability. Based on this, this paper attempts to empirically analyze the impact of OFDI on regional innovation capability from the perspective of intellectual property protection, and investigate the mechanism of intellectual property protection in OFDI’s influence on innovation capability.
First of all, through the study of domestic and foreign literature, we find that most of the literature stays in the test whether OFDI promotes technological progress in the home country, and few scholars pay attention to the indirect effects of institutional factors such as intellectual property protection in the impact of foreign direct investment reverse technology spillovers on technological innovation capabilities. In addition, the accumulation of technological innovation is related to past knowledge and creativity, and the model has endogenous problems, and the traditional static model is not applicable. Therefore, this paper constructs a dynamic panel threshold regression model based on panel data of 30 provinces in China, aiming to investigate whether foreign direct investment can promote China’s innovation capability and the role of intellectual property protection in the relationship between the two.
Secondly, we set the model according to the knowledge production function, and selected R&D fund investment, R&D personnel investment, human capital, financial development level, economic development level and scientific and technological support level as control variables. Due to factors such as intellectual property protection, there may not be a simple linear relationship between OFDI and innovation capabilities. In order to discover the role of intellectual property protection in OFDI’s influence on regional innovation capabilities, we established a dynamic threshold regression model with intellectual property protection as the threshold variable. This model makes up for the deficiency of the static panel threshold model, and it not only can estimate the threshold value, but also can deal with the endogenous problems in the model. The empirical results show that the threshold effect of intellectual property protection exists between OFDI and the innovation capabilities. When the level of intellectual property protection in different provinces is different, the impact of OFDI on innovation capabilities is different. The role of OFDI on the innovation capacity is influenced by the level of intellectual property protection. When the degree of intellectual property protection is higher, OFDI is more conducive to the improvement of innovation capabilities in the provinces. The possible reason is that a higher level of intellectual property protection can encourage OFDI enterprises to study more advanced foreign technologies, digest, absorb and re-innovate, so as to improve the promotion effect of OFDI reverse technology spillover on domestic innovation capacity.
Thirdly, according to the threshold value in the threshold model, 30 provinces are divided into low intellectual property protection area and high intellectual property protection area. According to the analysis, the provinces located in the high intellectual property protection area account for a small number, most of which are the eastern and central provinces, while the western provinces only include Shaanxi, Gansu and Sichuan. This indicates that most provinces in western China have a low level of intellectual property protection, and the reverse spillover effect of OFDI has no significant impact on regional innovation capacity. However, only a few provinces in the eastern and central regions have higher level of intellectual property protection, and the reverse technology spillover of OFDI can promote the regional innovation capacity. This indicates that when China expands its foreign direct investment, most provinces will not significantly improve their local innovation capability, and while only a few provinces will. Therefore, when studying the relationship between OFDI and China’s innovation capacity, institutional factors such as intellectual property protection should be fully considered.
Fourthly, we can separately calculate the contribution rate of OFDI to regional innovation capability in high intellectual property protection area and low intellectual property protection area. The results show that a higher level of intellectual property protection is conducive to improving the contribution of OFDI to regional innovation capacity. In regions with a low level of intellectual property protection, OFDI’s contribution rate to regional innovation capacity is relatively low, which indicates that policies to promote domestic innovation capability through OFDI are basically ineffective. In regions with a high level of intellectual property protection, OFDI has a higher contribution rate to regional innovation capacity, which indicates that OFDI is conducive to promoting domestic innovation capacity, so intellectual property protection should be strengthened while promoting OFDI.
At the end of this paper, the research conclusions and policy suggestions are given. Taken the level of intellectual property infringement and technology transfer market size as the measure of regional intellectual property protection level, the role of intellectual property protection in the effect of OFDI on regional innovation ability has been analyzed by using the dynamic panel threshold regression model with the interprovincial panel data from 2003 to 2013 in China. The results show that the effect of OFDI on regional innovation ability is influenced by the degree of intellectual property protection; when the intellectual property protection level is lower than the threshold value, the OFDI has no significant effect on the innovation ability, the contribution rate of OFDI to regional innovation capacity is lower, and the policy of promoting domestic innovation ability through OFDI is basically invalid; when the intellectual property protection level is higher than the threshold value, the OFDI has significant positive effect on the innovation ability, and the contribution rate of OFDI to regional innovation capacity is higher, the OFDI will promote the innovation ability. The results also show that the intellectual property protection level of most provinces in China is lower, only few provinces across the threshold value of intellectual property protection, most provinces have not crossed the threshold, and strengthening the intellectual property protection is conducive to enhancing OFDI’s role in promoting regional innovation capacity.
Through the conclusion of the study, we propose the following policy recommendations: When local governments improve their regional innovation capability through OFDI, they should perfect and improve intellectual property protection laws and regulations, and strengthen the cultivation of talents specialized in intellectual property, strengthen the construction of technology trading market, and resolutely investigate and punish infringement of intellectual property rights, strengthen the enforcement of intellectual property rights protection, and actively support the intellectual property rights protection, so as to improve the level of intellectual property protection in China.

Key words: intellectual property protection, OFDI, innovation capacity, panel data, threshold effect