Abstract: Abstract: A threshold model is constructed based on Chinese panel data to analysis the technology spillovers of FDI and its “threshold effect” of regional innovation capability. The results show that the technology spillovers of FDI have the “dual-threshold effect” based on the regional innovation capability. Since 1987, most provinces in China have entered into the region of middle innovation capability, so the technology spillovers of FDI became significant in these provinces. However, the technology spillovers effect is absorbed insufficiently, because these provinces have not entered into the region of high innovation capability. The empirical results approve that the “market for technology” strategy should be implemented unceasingly and the regional innovation capability should be improved, in order to absorb the technology spillovers of FDI sufficiently in China.

Key words: innovation capability, FDI, threshold model, technology spillover