Technology transfer of foreign direct investment in China-based on two-sector model

Foreign direct investment (FDI) inflow increases greatly since China´s openness and whether FDI is conducive to promote China´s technology advance via technology transfer still remains a controversial issue. The paper first uses a classical two-factor production function which divide the economy into domestic and foreign sector, then augments the model, taking into account the externalities by technology transfer of FDI to domestic sector. Using provincial panel data, results indicate that positive FDI technology transfer prevails across China, and much higher in coastal regions due to better economic and FDI performance than that that in middle and western regions.