The State as a Vehicle of Technological Change: Economic Openness, Technological Catching-up, and Indigenous Innovation in Chinese Firms

The global integration of capital and technology generates a pressing debate on how technologically backward countries can benefit from FDI, and catch up technologically. This study identifies the mechanisms in the triangle of globalization-state-firm accounting for firms' indigenous innovations. Specifically, I test three types of the state's roles-the state's infrastructure-building, partnership with the firm, and direct intervention into firm governance, combined with FDI spillovers and local firms' absorptive capacity, in shaping local firms' innovativeness in a national dataset of Chinese firms. I find that during Chinese firms' initial technological take-off, the state helped enhance local firms' indigenous innovativeness through its infrastructure-building and various partnerships with the firms. All three types of the state's roles are found to positively modulate the firms' absorptive capacities in affecting their innovativeness. The state's infrastructure-building and the firm's state ownership helped weaken the negative role of some FDI-related effects in influencing firm innovativeness.