How Does Diversity in Employee and R&D Facilitate FDI Knowledge Spillovers: A Threshold Perspective

Abstract

This paper examines how the diversity of a firm’s employee composition and R&D structure affect its absorption of foreign direct investment (FDI) spillovers. Using a unique dataset of Chinese firms in Beijing Zhongguancun (ZGC) Science Park from 2005 to 2015, we demonstrate a positive FDI spillover effect on domestic firm innovation. Our empirical results also indicate that a firm’s diverse employee composition and R&D spending can improve its absorptive capacities to learn from foreign firms. By employing a seminal dynamic panel threshold model, we further show that after reaching a certain threshold, the increasing diversity of a firm’s employee composition begins not to affect the relationship between FDI spillovers and its innovation, while a higher diversity of R&D structure turns into a negative moderating effect. Firms therefore need to place more attention on their diverse innovation structures.