Firm-Level Evidence from Chinese Industry1

The capacity of developing economies to narrow the gap in living standards with the OECD nations depends critically on their ability to imitate and innovate new technologies. Toward this end, developing economies have access to three avenues of technological advance: technology transfer, domestic R&D, and foreign direct investment. This paper examines the contributions of each of these avenues, as well as their interactions, to productivity and knowledge production within Chinese industry. Based on a large data set for China’s large and medium-size enterprises, the estimation results show that technology transfer – whether domestic or foreign – affects productivity only through its interactions with in-house R&D. Foreign direct investment does not appear to facilitate the adoption of market-mediated foreign technology transfer. Firms wishing to produce patentable knowledge do not benefit from technology transfer; patentable knowledge i