Can private domestic investment lead Chinese technological progress?

Abstract

This study examines the effects of private domestic investment (PDI), foreign domestic investment (FDI), state-owned units’ investment (SOI) and their interactions on technological progress in China. Specifically, we test whether PDI leads Chinese technological progress, and crowd-out effects from FDI and SOI. The empirical analysis is based on panel data consisting of 29 Chinese provinces and municipalities over 1989–2014. We extract technological progress using the panel stochastic frontier model and examine its determinants. Our findings suggest that while PDI, FDI and SOI all positively contribute to technological progress in China, PDI is the dominant contributor.