The technology market, FDI and innovation in China: An empirical analysis based on provincial panel data

This work develops a knowledge production function that links Griliches-Jaffe knowledge production function with FDI and technology market vitality. Using the provincial data from 2003 to 2012 in China, we construct a dynamic panel model of innovation outputs. This paper assesses whether, how, and to what extent FDI and technology market turnover are sensitive to domestic patent applications. We find that the effect of lagged domestic patent applications on the current domestic patent applications is significantly positive, highlighting the importance of knowledge stocks. This finding is robust under both one-step DIF GMM and two-step DIF GMM estimations. The FDI and technology market turnover coefficients are significantly positive for the advanced innovation such as invention patent applications and insignificant for the minor innovation such as utility model and design patent applications at a 5% level.