Testing technology spillovers of FDI: a stochastic frontier approach

Abstract

This article examines the technology spillover of foreign direct investment (FDI) in Gansu China, using the stochastic frontier approach. Following a general to specific estimation strategy, we find that FDI does positively affect domestic firms’ technical efficiency if it is measured in terms of FDI invested firms’ output/employment share in the industry. In addition, firms’ R&D expense appears to play a positive role in the scale of the spillover, which however shall be interpreted with caution as it is not robust to hypothesis tests.