Regions and Innovation: A New Tale of Three Economic Regions in China

Abstract

Learning is a key component of firm upgrades in emerging economies, and China is no exception. Studies have identified two critical mechanisms that facilitate learning: 1) connections with supportive local governments that enhance access to resources or publicly funded knowledge and 2) connections to foreign MNEs that enhance access to advanced knowledge and capabilities. Previous studies of the effects of these connections on learning and innovation have had contradictory results. In this study, we develop a model of firm innovation capabilities based on regional differences in firms’ dependence on government and MNEs. Using a sample of 715 indigenous firms from the three historically dominant economic regions in China, we find that the impacts of government and MNE ties on local firms’ exploratory learning and innovation performance vary depending on the historically dominant dependency patterns in the region.