Final Report Summary - RACCOM (Regional Absorptive Capacity and the Contribution of Multinational Corporations to Knowledge Production in the Local Economy within a Developing Economy Context: The Case of China)
Geographers, economists, and planners have recently begun to emphasise knowledge production as an important source of both regional and national economic growth. In this context, the subsidiary of a multinational corporation (MNC) can be seen as a conduit for the importation of superior knowledge. In developing countries, where knowledge bases are weaker than in advanced economies, MNCs are often expected to be a primary source of innovation. This study examines whether this view is supported by the evidence based on an analysis of China. This research distinguishes itself from the existing literature by focusing on (1) a region (rather than a firm) as a unit of knowledge absorption and (2) knowledge flow as such, rather than its outcomes (such as productivity improvement). The project’s objective is twofold. First, it measures an MNC subsidiary’s contribution to local knowledge production and compares it against that of local firms. Second, it explains the difference between cities’ and regions’ ability to learn from MNC subsidiaries using an econometric model. We chose to focus on China among developing economies for several reasons. 1) The country’s vast physical size provides us a better opportunity to witness how distinct regional characters determine the absorption of MNC knowledge than do physically smaller countries, which lie within regions whose distinctive characteristics could influence knowledge absorption not only within the region but also in neighbouring regions. 2) The extreme economic disparity existing among regions in China offers a natural experiment in knowledge spillover in regions with different development levels. 3) Huge technological competence gaps exist among Chinese firms. Since the late 1990s, Chinese companies’ research and development (R&D) investment has grown tremendously, while foreign firms have been locating their R&D centres in major Chinese cities. However, many local firms are still exporting traditional products made through cheap labour. These contrasting technology levels create an enormous potential for lagging firms to take advantage of knowledge absorption. 4) Finally, China is the second largest foreign direct investment (FDI) recipient and is the largest among developing countries by far; thus, understanding the Chinese case is important in and of itself.