Entry of foreign firms and R&D behaviour: a panel data study of domestic and foreign firms in China

Anwar, Sajid, and Sun, Sizhong (2014) Entry of foreign firms and R&D behaviour: a panel data study of domestic and foreign firms in China. Economics of Innovation and New Technology, 23. pp. 1-19.

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Abstract

Rapid globalization has resulted in increased competitive pressures. The entry of foreign firms in a host economy increases the level of competition faced by not only the domestic firms but also the existing foreign firms. We argue that domestic firms, especially in developing countries, respond to this situation by increasing their research and development (R&D) spending, whereas the foreign firms decrease their R&D spending. By making use of firm-level panel data from China's manufacturing sector, over the period 2005–2007, this paper investigates the impact of the entry of foreign firms on R&D behaviour of domestic and foreign firms. Empirical analysis, based on Tobit and Instrumental Variables Tobit regression, reveals that foreign entry increases the R&D intensity of domestic firms but its impact on R&D intensity of foreign firms is negative. The estimated results are found to be robust across balanced and unbalanced panels.

Item ID: 33906
Item Type: Article (Research - C1)
ISSN: 1476-8364
Keywords: R&D intensity; entry of foreign firms; Chinese economy; Tobit regression; instrumental variables Tobit regression; panel data analysis
Date Deposited: 08 Jul 2014 23:47
FoR Codes: 14 ECONOMICS > 1402 Applied Economics > 140209 Industry Economics and Industrial Organisation @ 60%
14 ECONOMICS > 1402 Applied Economics > 140210 International Economics and International Finance @ 40%
SEO Codes: 91 ECONOMIC FRAMEWORK > 9102 Microeconomics > 910210 Production @ 100%
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