FDI, Technology Spillovers, and Green Innovation: Theoretical Analysis and Evidence from China

Abstract

Foreign direct investment (FDI) technology spillovers play an increasingly important role in a host country’s development. Evaluating the positive effect of FDI inflows on green innovation is essential for correct city design. Based on the panel data of 262 cities in China from 2004 to 2018, we first analyzed the impact of FDI technology spillovers on green innovation in Chinese cities and then tested the threshold effect in four absorptive capacity factors: environmental regulation, economic growth, human capital, and industry size. Finally, we compared the time and space of two types of cities crossing the threshold from the perspective of innovative and non-innovative cities. The results show that FDI can significantly promote green innovation in Chinese cities and the promoting effect of FDI on green innovation has nonlinear characteristics, namely, such effects only make sense when absorptive capacity is above the threshold points. Additionally, among the four absorptive capacity factors, the development degrees of innovative cities are ahead of non-innovative cities; in particular, there is a significant difference between them in terms of economic growth. Local governments should develop reasonable policy combination tools according to the absorptive capacity characteristics of different cities to effectively promote the technology spillover effect of FDI and achieve coordinated ecological and economic development.