We empirically estimated the effect of three types of investment in acquiring technological knowledge (in-house R&D, importing foreign technology and purchasing domestic technology) on the innovation output of Chinese firms in four hi-tech industries. These investments on technology are assumed to generate different types of knowledge, which in turn contribute to the enhancement of the technology capability of firms. Based on a dataset constructed from a panel of 30 regions over the ten year period of 1995–2004, we estimated an aggregated patent production function with the region-industry combination as units of analysis. Our results show that investing in foreign technology alone does not facilitate the introduction of innovation, unless it is coupled with a firm’s own in-house R&D effort. Domestic technology purchases also favourably influence innovation, suggesting that firms have little difficulty in absorbing domestic technological knowledge. The relative importance of the three types of technological knowledge differs across industries.
Keywords: patents, in-house R&D, absorptive capabilities, technology import, China