The Determinants of Firms’ Domestic Sales Ratios and New Product Ratios in China: Learning Effects, Spillover Effects, and R&D
Date Issued
2011
Date
2011
Author(s)
Kang, Ting-Yueh
Abstract
China has achieved rapid economic growth since the 1990s, and the development of its domestic market of 1.3 billion people has attracted great attention worldwide. This growth also signifies that China has transformed from “the world’s factory” to an emerging market for multinational enterprises. Hence, investigation of the determinants of domestic sales has gained importance. In addition, new products from firms are important indicators of Research and Development (R&D) output or performance. Therefore, we want to explore how R&D output in Chinese firms has changed with the support of China’s government for R&D activities. The following three essays are presented to examine the determinants of firms’ domestic sales ratios (the proportion of goods sold domestically) and new product ratios in China.
In the first essay, we consider that China has attracted a large amount of foreign investment over the past two decades. Many foreign investment enterprises (FIEs) in China hope to increase domestic sales because of the vast potential domestic market. Before 2000, China had strict limits on the domestic sales ratio for FIEs, and today, some barriers still exist, even though the restrictions have been officially lifted. Using a panel data of manufacturing FIEs from 1999 to 2006, this essay investigates the determinants of domestic sales ratios in China. This study considers the dynamic panel data model of domestic sales decisions by applying the System Generalized Method of Moment (System GMM) approach. We find the own learning effects and the spillover effects are both important determinants of domestic sales intensity, and vary across different ownership forms. These two effects are more significant for wholly foreign-owned ventures than for Chinese-foreign joint ventures. In addition, we also find evidence of a first-mover advantage in the Chinese domestic market.
In the second essay, we study how firms’ R&D intensity and two types of spillovers, i.e., R&D spillovers and domestic sales spillovers, affect their domestic sales ratios. Since firms operating in China display a U-shaped, rather than normal, distribution in their domestic sales ratios, we use quantile regression (QR) to perform the analysis. By using panel data of manufacturing firms in China for 2001-2006, we show that R&D intensity has a positive effect on the domestic sales ratio. This is counter to the traditional wisdom, in which R&D efforts tend to increase export intensity (e.g. Posner, 1961; Vernon, 1966; Barrios et al., 2003). In addition, we show that R&D spillovers from foreign-invested firms on the domestic sales ratio are greater than those stemming from domestic firms, while the opposite is true for domestic sales spillovers. Also, the spillover effects of both types are greater within the same ownership type than across different ownership types.
Subjects
Chinese firms
domestic sales ratios
new product ratios
learning effects
spillover effects
R&D
SDGs
Type
thesis
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