The level of human capital in innovative firms located in China. Is foreign capital relevant?

Abstract

Studies on the impact of foreign direct investment (FDI) on the Chinese economy have essentially focused on the relationship between FDI, productivity and economic growth, revealing a tendency toward sectoral, regional and macroeconomic empirical studies. This work aims to complement these approaches and contribute to the rather limited literature on the relationship between FDI, Human Capital and Innovation at a corporate level. Based on a set of large and innovative firms (national and foreign capital) located in China, we have concluded that (1) the direct impact of foreign capital on the level of human capital in firms is negative, that is no evidence was found suggesting that FDI has a positive influence on their human capital and (ii) in indirect terms, by means of investment in R&D (research and development) activities, FDI has a positive impact on general human capital (i.e. formal education). These results suggest that for China to benefit from FDI, it is necessary to implement a selective policy to attract FDI, taking into account more technologically advanced, R&D-based projects.