Knowledge spillovers, absorptive capacity and total factor productivity in China's manufacturing firms

Hailin Liao, Xiaohui Liu, Chengang Wang

Research output: Contribution to journalArticlepeer-review

19 Citations (Scopus)


Applying the stochastic frontier framework, this study explores the diffusion and absorption of technological knowledge in China's manufacturing firms, based on a panel of more than 10,000 local and foreign-invested firms over the period 1998-2001. Our empirical approach allows us to distinguish between technological progress (TP) and technical efficiency (TE) in analysing whether R&D, exports and the presence of foreign direct investment simultaneously enhance TP through knowledge spillovers in a single framework and whether different types of domestic absorptive capacity moderate external knowledge spillovers in relation to TE. The results show that there are positive inter-industry productivity spillovers from R&D and foreign presence, whereas evidence of intra-industry productivity spillovers from FDI to Chinese firms is less robust. We find evidence that absorptive capacity is one of the key determinants to quantitatively explain intra-industry differences in productivity of local Chinese firms. The findings have important policy implications.

Original languageEnglish
Pages (from-to)533-547
Number of pages15
JournalInternational Review of Applied Economics
Issue number4
Early online date21 Nov 2011
Publication statusPublished - Jul 2012
Externally publishedYes


  • absorptive capacity
  • China
  • knowledge spillovers
  • R&D
  • stochastic frontier

ASJC Scopus subject areas

  • Economics and Econometrics


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