Multiple Roles of Multinational Corporations, Local Institutions and Indigenous Technological Efforts in an Emerging Economy

Getting engaged in competitive international markets motivates exporting firms to enhance their technological capabilities and invest in research and development (R&D). However, R&D investment is one of several ways to enhance technological capabilities. When there are other sources of knowledge available, exporters' tendency to invest in R&D may be weakened. In the paper, three other sources of knowledge are identified: 1) multinational corporations (MNC) as customers, 2) MNCs as parents, and 3) FDI in a local industry. An analysis on 5,595 automobile parts and components manufacturers in China during 2005-2007 supports the above argument. In order to compete in overseas markets, Chinese automobile parts and components manufacturers' tendency to invest in R&D initially increased as their export intensity is relatively low. When the export intensity exceeds a threshold, exporters acquire more advanced knowledge from their foreign customers, reducing their tendency to invest in R&D. When the exporters have foreign parents or the FDI intensity in the local industry is high, their tendency to invest in R&D stimulated by export is further reduced. Better intellectual property protection helps increase the likelihood of in-house R&D stimulated by export.