Sustainability | Free Full-Text | The Effect of Outward FDI on Capabilities of Sustained Innovation: Evidence from China
Based on theoretical analysis, this paper examines the impact of China’s outward foreign direct investment on regional capabilities of sustainable innovation. Empirical tests are used to analyze the mechanism of OFDI in regional capabilities of sustainable innovation. OFDI’s impact on sustainable innovation is tested through the fixed effect, mediation effect, and threshold effect models by using provincial panel data from 30 provinces in China from 2008 to 2019. The results show that OFDI promotes regional capabilities of sustained innovation. Moreover, the effect of OFDI on sustainable innovation is found to be mediated by regional human capital accumulation. Furthermore, this study also finds that regional absorptive capacity and financial market development are two significant threshold variables in the process by which OFDI affects sustainable innovation. Before the threshold variables exceed the threshold level, OFDI encourages sustainable innovation, but this positive association becomes stronger after threshold variables reach the threshold level. The results have strong policy implications, which will be useful for local governments to make policies with the aim to maximize the benefits of OFDI and encourage sustainable innovation.