Fact of the Week: Multinational Firms’ Production and Knowledge Spillovers Increased China’s Technology Capital by 36 Percent
Source: Xiao Ma and Yiran Zhang, “How do Multinational Firms Impact China’s Technology? The Role of Quid Pro Quo Policy and Technology Spillovers,” MPRA Paper, University Library of Munich, Germany, No. 119371 (December 2023).
Commentary: A December 2023 working paper by Xiao Ma and Yiran Zhang analyzed the role of China’s quid pro quo policies, which tie foreign or multinational firms’ market access to mandatory technology transfers. Their aim was to quantify the effect that multinational enterprises have on China’s stock of technology capital via knowledge spillovers. Using data on firms and patents from China’s statistical agencies, the study consisted of over 270,000 multinational firms between 2000 and 2015. They defined a multinational firm as any firm with a foreign investor.
The authors used counterfactual scenarios to analyze the impacts of technology transfer from multinationals. They measured technology transfers using data on patent and license transfers from multinationals to domestic Chinese firms. Overall, they found that China’s technology capital would decrease by about 36 percent in the absence of production and knowledge spillovers from multinationals. In that same scenario, the researchers estimated that China’s GDP and wage rate would decrease by about 6.4 percent and 4.8 percent respectively. When looking only at the isolated effect of having no knowledge spillovers, they found that China’s stock of technology capital fall by about 21 percent.
The authors also estimated how much of that drop would be due to the absence of China’s quid pro quo policies. They found that, in the absence of such policies, China’s stock of technology capital would be about 27 percent lower. Additionally, they estimated that China’s GDP would decrease by about 2.9 percent. These findings suggest that multinationals play a significant role in Chinese innovation via the knowledge diffusion that results from technology transfer.
