Reverse Technology Spillover Effects of Outward FDI to P.R. China: A Threshold Regression Analysis

This paper uses P.R. China's provincial data from 2003 to 2012 to empirically measure the impact of marketization on the reverse technology spillover effects of outward foreign direct investment (OFDI) using a panel threshold regression model. Results show a positive reverse technology spillover effect of OFDI when the degree of marketization exceeds certain threshold levels. P.R. China can increase total factor productivity by accelerating its implementation of reforms in market policy toward outward FDI that take into account the differential regional marketization levels. In this article we extend previous methodological approaches in two significant ways to better understand the effect of market reforms on promoting technical change in P.R. China. First, we employ a set of market indexes that enable the measurement of innovation as an influencing factor on the reverse technology spillover effects of OFDI. Second, a panel of threshold variables linked to market levels is built into a non-linear econometric model to empirically test the presence or absence of reverse technology spillover effects of OFDI. Thus, the threshold values likely yield more robust estimates of the significance of the threshold effects. The analysis is based on a super slacks-based-measure model enhanced with traditional data envelopment analysis to measure the reverse technology spillover effects of OFDI through total factor productivity (TFP). This method avoids the deviation from the radial choice that would otherwise be necessary to sequentially solve the problem of multiple decision-making units located around the same production efficiency frontier.