External Technology Purchase and Indigenous Innovation in Chinese Hi-Tech Industries

I empirically investigated the effect of three types of investment in acquiring technological knowledge (in-house R&D, importing foreign technology and purchasing domestic technology) on the innovation output of Chinese domestic firms in hi-tech industries. These investments on technology are assumed to generate different types of knowledge, which in turn contribute to the enhancement of the technology capability of firms. Based on a dataset constructed from a panel of 21 4-digit Hi-tech sectors over the 10 year period of 1995~2004, I estimated an aggregated patent production function with the sector as units of analysis. The results show that investing in foreign technology alone does not facilitate the introduction of innovation in domestic firms, unless it is coupled with a firm's own in-house R&D effort. Domestic technology purchases also favorably influence innovation, suggesting that firms have little difficulty in absorbing domestic technological knowledge.