OFDI Reverse Technology Spillovers of Western China

As an important technology spillover path, FDI plays an increasingly important role in promoting domestic technological progress and optimizing industrial structure. This paper selects the data of GDP, R&D investment and fixed assets investment and employment in China from 2004 to 2011, and adopts a simple and classical linear-model to investigate the relationship between to increase the risk. From the regression results (t-statistics and p-value), there is the effect of reverse technology spillovers in Western China. And China in western region has the problems that economy and science and technology are underdeveloped, so the western region through the increase of foreign direct investment to promote technological upgrading is very necessary. At the same time, we believe that the government of the western region can improve and enhance the technical level, through foreign direct investment, so as to promote local economic development; at the same time, the western region enterprises through overseas investment, especially in technology intensive industry investment to improve the technical level, and mergers and acquisitions may be the effective way to obtain such a spillover effect.

Technology improvement of one country can rely on the domestic development capital. At the same time, it can also be obtained from other countries' develop-X. P. Yuan, Y. Y. Zhang ment capital through trade, namely FDI and OFDI. Not only can foreign investment of developed countries obtain technology spillovers from host countries, but also the foreign investment from emerging countries gradually becomes a significant channel to get foreign advanced technology so as to improve domestic productivity and technology.
Most of the former researches focused on the FDI technology spillovers for host countries and reverse technology spillovers between developed countries.
On the contrary, the effects of OFDI on parent companies and home countries were ignored previously. Knowledge spillovers have been a motive of emerging countries' OFDI. Some MNEs can promote its technology and productivity through investing abroad and some transmission mechanisms.

China Perspective
China is the biggest developing country. For our country as an emerging economy, foreign investment and trade acts as an important channel of technology progress. In the aspect of foreign investment, China has gradually been transforming from absorbing foreign investment to cross-bordered investment in recent years. According to the statistics of Commerce Department, Chinese outward FDI flow increased from $2.85 billion to $56.53 billion from 2003 to 2009. Under the circumstance, it has been the research focus of this field. Chinese government has enacted the policy of "going out", which has accelerated the research of relevant aspect. One of expectation of this strategy is to promote industrial upgrading and technology progress. Researchers focus on the technology effect of China's outward foreign direct investment.
Western China is less developed compared to eastern China. It will be more important or favorable for the development of this region to increase OFDI in the perspective of technology spillovers. In other words, this region can escalate through increasing outward foreign direct investment to other more developed countries and regions.

Research Purposes
Whether fast-growing outward foreign direct investment accelerates China's technological progress and whether China obtains reverse technology spillovers from investing host countries have been the crucial questions, especially in western China. Therefore, this research proposal has two purposes. The first one is to prove the existence of reverse technology spillovers of OFDI in western China. Secondly, it probes into what implications and suggestions should be afforded for local government of this region if this kind of spillovers exists. Kogut and Chang (1991)

Data Sources
To reach research objectives, I collect data from "China Statistical Yearbook", "China's foreign direct investment statistical bulletin", "China's major science and technology indicators database" and "OECD Factbook".

Variables
For this research proposal, I introduce three variables: TFP, OFDI and R&D/GDP.
My purpose is to find the relationship between the dependent variable-TFP and independent one-OFDI to explain the reverse technology spillovers.

Model
Through analyzing the research purpose and leaning others' researches, I use a simple and classical linear-model to investigate the relationship between TFP and OFDI. The model is: In this Equation, (1) TFP t indicates TFP in the end of year t, (2) OFDI t indicates OFDI amount in the end of year t and (3) RD d t indicates R&D expenditure in the end of year t. In the regression, I will use Y, X1 and X2 to represent TFP t , OFDI t and RD GDP d t t .
In this model, 0 α is the intercept, 1 α and 2 α are coefficients and indicates the impact of two independent variables on ln TFP . My purpose is to use 1 α and 2 α to find out the relationship between dependent and independent variables. Finally, I will examine the existence of reverse technological spillovers in western China of OFDI through t-test.

Graph-Scatter
In this empirical part, I use the statistical software-Eviews to run regression.
Before running regression, I draw the scatter to find out some basic relationship obviously.
It can be seen from Figure 1 that Y, X1 and X2 have a similar increasingly changing trend. Because X2-OFDI is an absolute number but Y and X1 represent relative numbers, so I take the natural logarithm on X2.

Regression Result
I use Eviews to do this regression. As a result, see Figure 2.

Existence
From the regression results (t-statistics and p-value), it can be observed that OFDI is significantly related to the TFP and their relationship is also positive. Consequently, there is the effect of reverse technology spillovers in western China. Western China is not very developed and its technology is not highly advanced as other developed regions. As can be seen from the initial research result, we can know it is favorable and necessary for western region to increase its OFDI to promote technical escalation.

Suggestions
The existence of OFDI reverse spillovers offers some implications for development of local region.
First and foremost, local government can improve and upgrade technology level through OFDI and thus can promote local economy.
Secondly, companies of western region can heighten their technology level by investing overseas especially for technology-intensive industry. M&A may be an effective way to obtain this kind of spillovers.
Last but not least, China can increase OFDI to developed countries and regions which possess abundant R&D factors, such as high-level technicians and core technology and so on.

Limitations
There are some limitations in this research proposal due to personal ability and time limitation.
To start with, the sample size used in this proposal is small, involving only 8 years from 2004 to 2011 due to the unavailability of other data. I could neither collect the data of OFDI before 2004 due to the incomplete statistics, nor obtain the data of R&D from 2012 to 2014 from "China's major science and technology indicators database". As a result, the test and the regression seem inaccurate, for instance, the regression result that X1 is not quite significant but in theoretically domestic R&D capital should have a significant impact on TFP.
Besides, regression model used in this essay is a basic one, which only includes two independent variables-OFDI and R&D/GDP. Only two obvious indicators are considered to measure the relationship. The model is simple and it expresses the relation of OFDI and TFP directly rather than the foreign R&D.
Apart from that, I think if the variable-foreign R&D spillovers stock can be included in this model, it will be more complete and accurate to weight the impact of OFDI on technology level of home countries. But the truth is that it is difficult to calculate foreign R&D spillovers stock for my ability, as it requires the international data and complex calculation.
Furthermore, I failed to take the industry factor into account. For technology-intensive industry, reverse technology spillovers of OFDI may be more obvious and easier to be measured. The total number of OFDI as a whole was taken to do research, instead of the divided industry. In the subsequent research, I will perhaps try the data of some different industries, run regression respectively and compare them to think about the different transmission mechanisms in different industries.