FDI pace, rhythm and host region technological upgrading: Intra- and interregional evidence from Chinese cities

Foreign Direct Investment (FDI) has long been regarded as a key source of new knowledge external to the domestic economy, but relatively little is known about how the host regions' technological upgrading is affected by the pace and rhythm of foreign firms' local expansion. Previous research has mainly considered FDI spillover effects within a closed area. Few studies have investigated how the technological upgrading of one area is influenced by the FDI in nearby regions. This paper therefore explores how the time-based characteristics of FDI, namely the pace and rhythm of FDI expansion, influence technological upgrading within and across cities. Using the panel data of 244 Chinese cities for the period from 2004 to 2011, our empirical results show that FDI spillovers have a positive effect on local technological upgrading in both local and neighbouring cities. Irregular FDI expansion negatively moderates FDI spillovers in the same city, but exhibits a positive effect on technological upgrading in neighbouring regions. Moreover, only rapid FDI expansion in neighbouring cities has a positive effect on local technological upgrading and can enhance its technological spillover effects across cities. Our empirical evidence provides implications for both the theoretical framework and policy making.