A Quantile Regression Analysis on the Relations between Foreign Direct Investment and Technological Innovation in China

The purpose of this paper is to analyze the correlation between foreign direct investment and technological innovation. Quantile regression is applied to empirically study the impacts of foreign direct investment on technological innovation from 1987 to 2009 in China. The results show that foreign direct investment has positive effects on China´s technological innovation at the bottom of conditional distribution, while the effects is negative at the top of conditional distribution. Based on these findings, the impacts of foreign direct investment to different technological innovation levels are analyzed in succession. Empirical results show that foreign direct investment exerts significant positive effects only for low technological innovation level at different locations of conditional distribution, but the role of foreign direct investment to high technological innovation level is negative. These differences must therefore be considered in the formulation of foreign direct investment policies.