Abstract
Discussions on the effect of technology transfer to recipient countries by international investment are rather inconsistent. In this paper, we empirically investigate the spillover effect via international outsourcing on Chinese local firms and the intermediary function of their absorptive capacities in technology diffusion process. We find that international service outsourcing provides more significant spillovers than materials outsourcing in that it improves domestic firms innovation performances. We also find that the existence of spillovers depend on local firms investment in tangible assets instead of human capital in China. This study contributes to debates about the economic impact of participating in international outsourcing and gives some suggestions for both policy makers and local firms in China.
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