Discussion paper

DP12809 International Joint Ventures and Internal versus External Technology Transfer: Evidence from China

This paper studies international joint ventures, where foreign direct investment is performed by a
foreign and a domestic firm that together set up a new firm, the joint venture. Employing administrative
data on all international joint ventures in China from 1998 to 2007—roughly a quarter of all international
joint ventures in the world—we find, first, that Chinese firms chosen to be partners of foreign investors
tend to be larger, more productive, and more likely subsidized than other Chinese firms. Second, there is
substantial technology transfer both to the joint venture and to the Chinese joint venture partner, an
external, intergenerational technology transfer effect that this paper introduces. Third, with technology
spillovers typically outweighing negative competition effects, joint ventures generate on net positive
externalities to other Chinese firms in the same industry. Joint venture externalities are large, perhaps
twice the size of wholly-owned FDI spillovers, and it is R&D-intensive firms, including the joint ventures
themselves, that benefit most from these externalities. Furthermore, the positive external joint venture
effect is larger if the foreign firm is from the U.S. rather than from Japan or Hong Kong, Macau, and
Taiwan, while this effect is virtually absent in broad sectors that include economic activities for which
China’s FDI policy has prohibited joint ventures.

£6.00
Citation

Keller, W, W Ridley, L Qiu and K Jiang (2018), ‘DP12809 International Joint Ventures and Internal versus External Technology Transfer: Evidence from China‘, CEPR Discussion Paper No. 12809. CEPR Press, Paris & London. https://cepr.org/publications/dp12809