Effect of cultural distance on reverse technology spillover from outward FDI: a bane or a boon?

ABSTRACT

This article aims to investigate the role of cultural distance in the relationship between outward foreign direct investment (OFDI) and reverse technology spillover. Chinese firm-level data have been used to examine whether the cultural distance between domestic and host countries is a bane or a boon to innovation when firms engage in OFDI for technology acquisition. Generally, businesses with similar cultural backgrounds have an easier time-making technological progress. However, this research revealed a deeper level of reverse technological spillover among firms that invest in Europe and the USA, which are considered to quite culturally distant from China. Reverse technological spillover through OFDI is positively affected by individualism and uncertainty avoidance, which are the two dimensions of cultural distance.

JEL CLASSFICATION:

• D21
• F21

KEYWORDS:

• OFDI
• reverse technology spillover
• cultural distance
• probit

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ http://www.geerthofstede.com/dimension-data-matrix.

Additional information

Funding

This work was supported by the China Postdoctoral Science Foundation [2017M611273]; Natural Science Foundation of Liaoning Province [201602179]; the Fundamental Research Funds for the Central Universities [DUT16RW125] and Major Program of the National Social Science Foundation of China [15ZDA025].