Global linkages and local institutions: the role of imports and MNEs in the regional diversification into complex products in China

This paper explores the role of product portfolios of domestic imports and foreign firms in the regional diversification of domestic firms to new exports. We find that regional diversification is favoured by product relatedness to the product portfolios of both imports and foreign firms. The positive effects from imports increase when diversifying to more complex products, while the effects from foreign firms remain relatively unchanged. Local embeddedness facilitates spillovers from foreign firms. Finally, local embeddedness amplifies the positive effects from both imports and foreign presence, particularly when diversifying into the most complex products.