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 A research on innovation-driven effect of two-way FDI interactive development in the manufacturing industry

 Xu Lei 1,2, Tang Shanshan1,2, Zhang Ximing1,2   

  1.  1. School of International Business, Sichuan International Study University, Chongqing 400031, China;
    2. Research Center for International Business and Economy, Sichuan International Study University, Chongqing 400031, China
  • Online:2020-02-20 Published:2020-03-10
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Abstract:  Over the past 40 years of reform and opening-up, China has deepened its industrialization process stimulated by factors such as demographic dividends. In 2018, China ′s manufacturing industry accounted for 29.4% of its GDP, far exceeding that of developed countries such as the United States, Japan, and Germany, and continued to consolidate China ′s status as a “big manufacturing country”. At the same time, however, problems such as "big but not strong" and "lack of innovation" in China′s manufacturing industry are becoming increasingly acute. Hence, in order to get rid of the hat of "world factory" and to complete the transformation and upgrade from "made in China" to "created in China", "innovation-driven" must be taken as one of the most important guidelines. Under the current increasingly prominent trend of globalization, however, relying solely on our country′s own R&D investment to enhance manufacturing innovation capabilities is no longer the best choice. International direct investment provides an important way. For a two-way investment country like China, it is particularly important to use two-way FDI to enhance manufacturing innovation capabilities. This paper reviews the research on the impact of international investment on innovation capabilities, and finds that most studies focus on the impact of one-way FDI on innovation capabilities, while only a few studies integrate two-way FDI into an analytical framework at the same time. However, the coexistence of two-way FDI has long been an indisputable fact in China, and it is biased to simply study the impact of IFDI or OFDI on innovation capabilities. In addition, since manufacturing industry is the main body of China′s real economy and the main battlefield of innovation activities, it is unavoidable to deeply investigate the impact of two-way FDI interactive development on the innovation capacity of China′s manufacturing industry. This study is of important practical and theoretical significance for the transformation and upgrading from "made in China" to "created in China", the promotion of "innovation-driven development strategy" and the realization of high-quality development of China′s manufacturing industry.

Given the above reality and theoretical background, this paper collects and sorts out a panel data of 27 industries in China′s manufacturing sector from 2003 to 2017 from China Statistical Yearbook, China Industrial Statistical Yearbook, Statistical Yearbook of Scientific and Technological Activities of Industrial Enterprises, and China Statistical Yearbook of Science and Technology. The research process is conducted through the following procedures. Firstly, this paper uses the Granger Causality Test to verify the interactive development relationship between two-way FDI in China′s manufacturing industry, and adopts the Capacity System Model in Physics to measure the degree of two-way FDI interactive development. Secondly, this paper constructs a panel data model to empirically analyze the innovation-driving effects of two-way FDI interactive development in China′s manufacturing industry. Finally, this paper divides the data of China′s manufacturing industry into three groups of industries such as labor-intensive, capital-intensive and technology-intensive manufacturing data, and empirically analyzes the industry heterogeneity of the innovation-driving effect of two-way FDI interactive development among the three groups of manufacturing industries.
Empirical research finds that, firstly, there exists a significant interactive development relationship between IFDI and OFDI in 27 manufacturing industries, and that different factor endowment and other industry characteristics in manufacturing enterprises also lead to significant industry differences in the extent of FDI interactive development, whereas the highest level of two-way FDI coupling and coordination is found in technology-intensive industries. Secondly, the extent of two-way FDI interactive development in China′s manufacturing industry has a significant positive effect on the innovation capacity of various industries, that is, the two-way FDI interactive development in China′s manufacturing industry does have a significant innovation-driving effect; There is significant industry heterogeneity in the innovation-driving effect, of which the highest level of the innovation-driving effect could be found in technology-intensive industries, followed by labor-intensive industries and the lowest level in capital-intensive industries. In addition, the input of scientific research talents and scientific and technological funding are still key factors in improving innovation capabilities, but the effect of these two factors on the improvement of innovation capacity varies across industries, which may be subjected by the comparison between the "incentive effects" and "cost effects" of innovation input into innovation activities in various industries. Moreover, the enhancement effect of government support, openness, foreign trade competition and other factors on the innovation ability of various industries may present industry heterogeneity due to the different possibilities of occurring phenomenon such as "innovation erosion" and "false innovation" in various industries.
Based on the above conclusions, this paper draws the following policy implications. On the one hand, at the current stage, in order to improve the innovation capability of manufacturing industry in China, the driving effect of two-way FDI interactive development on the innovation ability of China′s manufacturing industry cannot be ignored. While insisting on "Bringing in" and "Going out" strategy, the government should carry out more institutional innovations in the areas of investment, trade, finance, supervision, and legal protection when constructing "Free Trade Zones" in various regions, and make great efforts to optimize the international investment environment, to promote the formation of interactive two-way FDI development and to enhance the innovation capability of the entire manufacturing industry in China. On the other hand, the impact of industry characteristics on the two-way FDI interactive development and its innovation-driving effects should be fully emphasized. Different industry policies should be formulated based on industry differences such as factor endowment, industry size, institutional environment, and market players. In addition, since the highest level of innovation-driving effect of two-way FDI interactive development is found in China′s technology-intensive manufacturing industry, among which industries such as "communications equipment, computers and other electronic equipment manufacturing", "transportation equipment manufacturing", "electric machinery and equipment manufacturing" are particularly prominent. When implementing the strategies of “Bringing in” and “Going out”, the government should pay more attention to these technology-intensive industries and implement a corresponding policy in order to give full play to the innovation-driving effects of two-way FDI coordination and interaction in these industries.

 

Key words:   manufacturing industry, two-way FDI, innovation-driven, interactive development degree

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