The Investigation of Innovation and Performance of Chinese Manufacturing Firms: The Role of Foreign Direct Investment, Formal Institutions and Research and Development Strategies

By employing an institution-based view, this thesis proposes that the innovation of indigenous firms is directly influenced by FDI and formal institutions and the latter also moderate the effects of the former. I use the World Bank Enterprise Survey 2003(WBES2003). The following findings are obtained: 1) FDI generates negative spillover effects on patents; 2) formal institutions positively affect innovation of firms; 3) formal institutions positively moderate the negative FDI innovation effects.

This thesis also looks at the role of formal institutions at regional level. It proposes that regional formal institutions and FDI affect the innovation of Chinese firms and also affect regional innovation. I use the WBES2012, China Statistical Yearbook and the NERI Index of Marketization of China. The following findings are obtained: 1) FDI generates no spillover effects on innovation; 2) regional formal institutions promote innovation of Chinese firms, while the study fails to discover such an impact from legal institutions; 3) regional formal institutions promote regional innovation.

In addition, this thesis also looks at the role of national innovation system (NIS) and a firm’s R&D strategy in firm performance. It proposes that the performance of indigenous firms is directly affected by R&D strategy, NIS and FDI. Moreover, R&D strategy and NIS can also moderate FDI spillover effects. I use the WBES2003.The findings suggest the following: 1) firm performance is positively linked to the level of originality in a firm’s R&D strategy; 2) NIS promotes firm performance; 3) FDI generates positive spillover effects on total sales; 4) FDI spillover effects are positively moderated by a firm’s R&D strategy and NIS.