How does inward foreign direct investment shape emerging market firm invention patenting tendency? Evidence from China

Inward foreign direct investment (IFDI) carries critical implications for local firms, especially in the context of emerging markets, such as China. Scholars typically suggest that IFDI benefits local firms’ innovation through knowledge spillovers. Our study reveals a downside of such spillovers by articulating the negative influence of IFDI on local firms’ tendencies towards invention patenting (vis-a-vis utility model patenting) within their overall patenting. We further identify two contingency effects to help substantiate the mechanisms underlying the negative effect of IFDI on local firms’ invention patenting tendency. Using panel data on Chinese manufacturing firms during 2000–2010, we find that although industry-level IFDI intensity increases local firms’ total patent applications, it decreases the proportion of invention patents within total applications. This negative effect of IFDI is amplified by industry technology orientation and industry competitive intensity. Our study offers more fine-grained insights into the linkage between IFDI and local innovation by illustrating how local firms balance different types of patents in response to IFDI spillovers.