Role of education for spillover effects of FDI on innovation in China: Evidence from the 1998–2008 provincial panel data

Foreign direct investment (FDI) can benefit innovation activity in the host country via spillover channels. However, it may also cause negative effects because of the absorptive capacity of the host country. To analyze the absorptive capacity of the host country, experts usually put their attentions on the level of R&D investment. This paper focused on the role of education on spillover effects of FDI. Using provincial panel data from 1998 to 2008, we found spillover effects of FDI on innovation in China are influenced by the level of education investment. Different kinds of education investment plays different role on FDI spillover effects. China needs to improve the education system and speed up the education reform.