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Foreign Direct Investment and the Incentives to Innovate and Imitate *

Foreign Direct Investment and the Incentives to Innovate and Imitate * We propose a new channel of FDI spillovers on domestic firms, which operates through imitation of original products. Domestic heterogeneous firms may not introduce any new products, introduce a new product line (innovate), or develop a variety that is a close substitute to an existing product line (imitate). The presence of foreign firms generates incentives for imitation because they introduce original products that are vertically differentiated from domestic products. Using firm‐level panel data for China, we find that increased FDI presence in a given industry leads to more imitation, but not necessarily more innovation, by domestic firms. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Scandinavian Journal of Economics Wiley

Foreign Direct Investment and the Incentives to Innovate and Imitate *

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References (48)

Publisher
Wiley
Copyright
© The editors of the Scandinavian Journal of Economics 2009
ISSN
0347-0520
eISSN
1467-9442
DOI
10.1111/j.1467-9442.2009.01589.x
Publisher site
See Article on Publisher Site

Abstract

We propose a new channel of FDI spillovers on domestic firms, which operates through imitation of original products. Domestic heterogeneous firms may not introduce any new products, introduce a new product line (innovate), or develop a variety that is a close substitute to an existing product line (imitate). The presence of foreign firms generates incentives for imitation because they introduce original products that are vertically differentiated from domestic products. Using firm‐level panel data for China, we find that increased FDI presence in a given industry leads to more imitation, but not necessarily more innovation, by domestic firms.

Journal

The Scandinavian Journal of EconomicsWiley

Published: Dec 1, 2009

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