Does Institutional Distance Affect Transnational Knowledge Spillovers Between Countries?

Abstract

This article studies the impacts of the institutional distances between home and host countries on technology spillovers and reverse technology spillovers of multinational investment. Extant research has studied the impacts of the technological spillover effects of foreign direct investment (FDI) and outward FDI (OFDI) on the technology innovation of home and host countries and the impact of the institutional environment on the technological spillovers of transnational investments. However, these studies have failed to distinguish the impacts of institutional profiles and institutional distances on multinational investments. The impacts of institutional profiles and institutional distances on cross-border business activities require additional, diligent theoretical and empirical research. We believe that the technological spillovers of multinational enterprises (MNEs) are affected not only by their institutional environments but also (and perhaps more importantly) by the institutional distances between home and host countries. We used data for Chinese investment in 11 countries over the past 15 years, and the analytical results showed some interesting conclusions. China's OFDI has not produced significant technology spillover effects, so overseas investment by MNEs needs to be more mature and return to rationality. However, FDI has a significant technology spillover effect, and institutional distance has indeed hindered FDI technology spillovers in China.