Intellectual returnees as drivers of indigenous innovation: Evidence from the Chinese photovoltaic industry

• Author: David Popp,Mary E. Lovely,Siping Luo
• DOI: http://doi.org/10.1111/twec.12536
• Date: 01 November 2017
• Published date: 01 November 2017

ORIGINAL ARTICLE

Intellectual returnees as drivers of indigenous

innovation: Evidence from the Chinese photovoltaic

industry

Siping Luo

1,2

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Mary E. Lovely

3

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David Popp

4,5

1

Industrial and Commercial Bank of China (ICBC), Beijing, China

2

School of Public Policy and Management, Tsinghua University, Beijing, China

3

Department of Economics, Syracuse University, Syracuse, NY, USA

4

Department of Public Administration and International Affairs, Syracuse University, Syracuse, NY, USA

5

National Bureau of Economic Research, Cambridge, MA, USA

1

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INTRODUCTION

Innovation is seen as the driving force of productivity growth (Fagerberg & Verspagen, 2002;

Freeman & Louca, 2001; Freeman & Soete, 1997). However, as shown by Breznitz and Murphree

(2011) for the case of China, breakthrough innovation is not the only route to sustained growth.

China has maintained steady income advances by receiving new technology from richer coun tries

and mastering subsequent stages of innovation, a process known as “incremental innovation.”

1

Such innovation and specialisation have propelled profound shifts in Chinese trade patterns: while

starting at very low levels a decade earlier, by 2007, 28.6% of Chinese exports were considered

high technology, dominated by flows of computer, electronic, communications and integrated cir-

cuit production hardware (Breznitz and Murphree 2011, p. 207).

Empirical studies have identified various channels through which cross-border flows facilitate

international technology transfer: international trade (e.g., Keller, 2010), foreign direct investment

(e.g., Kemeny, 2010; Veugelers & Cassiman, 2004) and joint R&D ventures (e.g.,Zhou et al.,

2012).

2

Other scholars note the importance of supply chains to technology transfer, and especially

to indigenous innovation. Xu and Sheng (2012) use firm-level evidence from China to argue that

positive spillovers from FDI arise from forward linkages, that is, from access to superior intermedi-

ate inputs or capital equipment. Puga and Trefler (2010) expand the idea of forward linkages when

they argue that the movement of new products from a developed to developing countries induces

incremental indigenous innovation as the production process is refined and standardised in the

low-wage setting. This process of indigenous innovation allows low-wage countries to export

1

Puga and Trefler (2010) attribute coinage of the term “incremental innovation”to Rosenberg (1982, p. 64) and describe this

form of invention as the “unsung hero of modern economic growth.”

2

Keller (2004) provides surveys of the channels of international technology diffusion.

DOI: 10.1111/twec.12536

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©2017 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/twec World Econ. 2017;40:2424–2454.

increasingly sophisticated new goods, thereby reducing the length of the product cycle and rapidly

shifting world trade patterns.

3

Recently, attention has shifted to “intellectual returnees,”skilled persons who study or work in

an advanced economy and subsequently return to their origin country, as a conduit for technology

transfer and a spark for indigenous innovation (Mountford, 1997; Saxenian, 2006; Zucker &

Darby, 2007).

4

Returnees may offer their home countries human and venture capital, familiarity

with systems developed by multinational firms and valuable connections and cultural links to their

host countries (Wang, Zweig, & Lin, 2011). There is already a small body of evidence on intellec-

tual returnees and innovation from China, which is not surprising given its scale and the impor-

tance it attaches to return of highly skilled Chinese from overseas. Deng , Jean, and Sinkovics

(2012) draw on a survey of 998 Chinese manufacturing firms to estimate a positive relationship

between the share of managers with an overseas education and a proxy for innovative perfor-

mance, the share of new product in the firm’s total export volume.

5

Filatotchev, Liu, Buck, and

Wright (2009) collect data from high-tech firms in a Beijing science park and find that firms

owned by Chinese natives with at least 2 years of experience in an OECD country are more likely

to export and to report export sales growth. Liu, Lu, Filatotchev, Buck, and Wright (2010) use

panel data from the same science park to show that returnee-owned firms have significantly higher

levels of innovation, defined as Chinese patents per employee. Filatotchev, Liu, Lu, and Wright

(2011) use the same sample of firms to show that returnee entrepreneurs create know ledge spil-

lovers for non-returnee enterprises.

This paper provides further evidence on the link between indigenous innovation and intellectual

returnees through close investigation of patenting in one industry, the photovoltaic (PV) industry.

Specifically, we estimate the relationship between innovative activity in Chinese PV firms and the

presence of corporate leaders who have studied or trained in an advanced country. We find robust

evidence that returnees positively influence firm patenting activity. Our results also suggest that

returnees spur the innovative activity of neighbouring firms via inter-firm spillovers. When control-

ling for expenditures on R&D activity, we still find that firms with intellectual returnees in leader-

ship roles have more patents.

Our findings for the solar equipment industry are consistent with earlier evidence from firms in

the Beijing science park (Filatotchev et al., 2011; Liu et al., 2010). Thus, our results support the

external validity of previous studies based upon geographically clustered firms, including those in

science parks developed in part to lure ex-pats back home to start businesses in key sectors. Addi-

tionally, because firms in our sample are located in many jurisdictions, some of which target the

solar industry for development and some of which do not, we are able to show that patenting is

3

Puga and Trefler (2010) provide a formal model of this process and supporting evidence of incremental innovation in low-

wage countries by combining data on the location of first production for innovative goods with data on patents by low-wage

country inventors for US corporations.

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Tech transfer via mobile workers may also occur from inter-firm migrations. Song, Almeida, and Wu (2003) observe

patenting by non-US firms that hire engineers from US firms and find that first patents granted to mobile engineers in the

hiring firms are about seven times more likely to cite the source firm’s patents than randomly selected controls. Oettl and

Agrawal (2008) find that cross-border movement of inventors raises patenting by the recruiting firm, but also leads to

increased patent counts for the firm that lost the inventor.

5

Other studies provide indirect support for a link between overseas experience and firm innovation. Notably, Lu, Liu, Fila-

totchev, and Wright (2014) use a unique data set of Chinese listed firms to investigate how domestic industrial diversifica-

tion affects the number of foreign markets in which a firm operates, a proxy for technical sophistication. They find that

international experience by the firm’s top leaders strengthens the impact of domestic diversification on the extensive margin

of firm’s export markets.

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