Openness, absorptive capacity, and regional innovation in China

This paper systematically investigates the impacts of openness on regional innovation in China, especially the role of absorptive capacity in mediating the spillover effect brought about by openness. Based on provincial-level data over the period 1997-2007 and adopting patents as indicator of innovation, the empirical results show that the estimated patents - R&D elasticity is lower than that for OECD countries, while there is a significant R&D spillover effect across regions in China. Technology import overall has no significant influence on fostering innovations, but it is significantly positive for coastal regions. Openness to trade, in terms of FDI and high-tech product exports, is witnessed to exhibit a significantly positive impact on promoting regional innovation. Crucially, the effects of technology imports and FDI on innovations vary significantly between coastal and non-coastal regions. Using human capital as a proxy for absorptive capacity, we find it helps in learning external sources of knowledge and then contributes to innovations. Moreover, absorptive capacity is expected to play an important role in mediating the spillover effect brought about by openness to trade.