Sources of External Technology, Absorptive Capacity, and Innovation Capability in Chinese State-Owned High-Tech Enterprises

This paper examines the pattern of innovation and learning among state-owned enterprises in Chinese high-tech sectors and empirically estimates the impact of three types of investment for acquiring technological knowledge—in-house R&D, importing foreign technology, and purchasing domestic technology—on the innovation capabilities of firms. Based on a panel dataset consisting of 21 high-tech sectors during the period 1995–2004, an augmented knowledge production function is estimated. The results show that importing foreign technology alone does not facilitate innovation in Chinese state-owned high-tech enterprises, unless in-house R&D is also conducted. Domestic technology purchases, however, are found to have a favorable direct impact on innovation, suggesting that firms have less difficulty in absorbing domestic technological knowledge than utilizing foreign technology and that absorptive capacity is contingent upon the source or nature of the external knowledge.