Do Multinationals' R&D Activities Stimulate Indigenous Entrepreneurship? Evidence from China's "Silicon Valley"
Using a unique firm-level dataset from China's "Silicon Valley," we investigate how multinational enterprises (MNEs) affect local entrepreneurship and R&D activities upon entry. We find that R&D activities of MNEs in an industry stimulate entry of domestic firms into the same industry and enhance R&D activities of newly entering domestic firms. By contrast, MNEs' production activities or domestic firms' R&D activities do not have such effect. Since MNEs are technologically more advanced than domestic firms, our findings suggest that diffusion of MNEs' advanced knowledge to potential indigenous entrepreneurs through MNEs' R&D stimulates entry of domestic firms.
The authors would like to thank Thomas Hellmann, Rebecca Henderson, Scott Stern, and participants of the NBER conference on "Entrepreneurship: Strategy and Structure" and CCER-NBER conference on "China and World Economy" for helpful comments and the Kauffman Foundation for financial support. We are also grateful to Hongjia Wang at the Research Department of Zhongguancun Administrative Commission for his valuable help on the project, and to the companies we interviewed for their cooperation. Todo thanks the New Energy and Industrial Technology Organization for financial support. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.