FDI and Intra-industrial Technology Spillovers ---Empirical Study on China s Manufacturing Industries

Transcription

1 Page 1 of 20 ANZAM 2009 FDI and Intra-ndustral Technology Spllovers ---Emprcal Study on Chna s Manufacturng Industres Prof. Zengyao Zhao * School of Busness, Soochow Unversty, Suzhou, Chna Emal: zzy63@sna.com Dr. Tao Xu School of Busness, Soochow Unversty, Suzhou, Chna Emal: tylerxu@sna.com

2 ANZAM 2009 Page 2 of 20 FDI AND INTRA-INDUSTRIAL TECHNOLOGY SPILLOVERS ---EMPIRICAL STUDY ON CHINA S MANUFACTURING INUDSTRY Abstract: In ths paper, we use the quantle regresson method to study Chna s 28 manufacturng ndustres from 1999 to The result ndcates that there s a sgnfcant ndustral dfference n the ntra-ndustral technology spllovers from the foregn nvested enterprses to Chna s local enterprses. For the ndustres wth weaker ntra-ndustral spllovers, there exst dfferent determnants for the spllovers. For the ndustres wth greater technology gap, lower weght of SOEs and large-medum enterprses, greater ndustral clusterng and hgher absorptve capacty, there wll be more sgnfcant ntra-ndustral technologcal spllovers. Key words: Technology; Multnatonal corporatons; Innovaton; Manufacturng technology I. INTRODUCTION Wth the large-scale foregn nvestment nflows nto Chna, the technologcal spllovers from the foregn nvested enterprses to the domestc enterprses have been n hot dscusson n Chna. But so far, the spllovers are dfferent for dfferent ndustres,.e. there has been a so-called ndustral effect of technologcal spllovers. Why do some ndustres have receved more technologcal spllovers whle others do not? It s very mportant for the Chnese local enterprses to mprove ther compettveness through learnng from the foregn nvested enterprses, and for Chnese government to adjust the polces concernng foregn drect nvestment to encourage more ntra-ndustral technologcal spllovers. But so far, n Chna, the relatonshp between domestc R&D, human resources, ndustral clusterng and the technologcal spllovers s not clear, whch has prevented the local enterprses from recevng more technologcal spllovers from the foregn nvested enterprses. So far, n Chna, the research n ths feld s qute nadequate. Our research has several contrbutons to the research of the ndustral effect of technologcal spllovers. Frst, our research s the frst effort to study the determnants of the ndustral effect of technologcal spllovers n Chna. Second, we have adopted the quantle regresson method to focus on the determnants of the ntra-ndustry technologcal spllovers n the ndustres wth weak spllovers. Actually, to mprove the compettveness of the Chnese local 1

3 Page 3 of 20 ANZAM 2009 enterprses, t s more urgent to know what has barrcaded the spllovers n those ndustres. The remander of the paper s structured as follows. Secton II presents a bref revew of the lterature. Secton III outlnes the methodology. Secton IV presents the emprcal results. Fnally, Secton V concludes. II. LITERATURE REVIEW The researchers have studed a lot on the determnants of the ntra-ndustral spllovers n western countres. Generally speakng, there are three channels for the ntra-ndustral spllovers from the multnatonal corporatons to the local enterprses,.e. the competton effect (Blomstrom, 1992; Parente & Prescott, 1999; Görg & Strobl, 2001; Parente & Prescott, 2003), the demonstraton effect (Gerschenkron, 1962; Kuznets, 1973; Blomstrom & Kokko, 1996; Blomström et al. 1999; Grffth, 2000), and the labor turnover effect (Gorg & Greenaway, 2004). In emprcal studes, Blomstrom (1986) and Koko (1994) used the enterprse concentraton ndcator n an ndustry to reflect the competton effect, whle Atken & Harrson (1999) used the enterprses scale n an ndustry to reflect the competton effect. Fndlay(1978) and Sjoholm(1999) used the technology gap between the local enterprses and the foregn enterprses to measure the advantage of backwardness of the local enterprses and hence representng the demonstraton effect of the foregn enterprses. Chnese researchers have studes the ntra-ndustral technology spllovers too, but none of them have dscussed the dfferent determnants for the ndustres wth dfferent degree of spllovers. Chen Taotao (2003), Chen Taotao, Fan Mngx & Ma Wenxang (2003) and Chen Taotao &Chen Jao (2006) have studed the ntra-ndustral technology spllovers from the multnatonal corporatons to the Chnese local enterprses. Ther results ndcate the technology gap and market competton are the major determnants of the ntra-ndustral spllovers n Chna, whle others have rather complcated 2

4 ANZAM 2009 Page 4 of 20 nfluences. But, so far n most lterature, the ordnary least square (OLS) method has been used wdely, whch shows the average relatonshp between the dependent varable and the ndependent varables. Wth OLS method, t s very hard to fnd the true reasons for weak ntra-ndustral spllovers n some ndustres. In contrast, Koenker and Bassett s (1978) quantle regresson method could serve the above purpose. Hence, n ths paper, we wll use the quantle regresson method to analyze the reasons for weak ntra-ndustral spllovers n some ndustres. 3

5 Page 5 of 20 ANZAM 2009 III. METHODOLOGY 1. Measurement of the Intra-ndustral Technology Spllovers To measure the ntra-ndustral technology spllovers, the extant lterature manly uses the productvty or output as the dependent varable, and runs a regresson on some foregn captal varables, wth some control varables such as rato of output to captal, rato of output to labor, etc. A sgnfcant coeffcent of foregn captal means that the entry of the multnatonal corporatons has brought about the ntra-ndustral technology spllovers (Tomohara &Yokota, 2007). We wll adopt the same method to measure the ntra-ndustral technology spllovers from the foregn enterprses to Chnese local enterprses n the manufacturng ndustres. Assume that n the -th ndustry, all the local enterprses have an dentcal Cobb-Douglass type producton functon as follow: (1) α β Y, D = A, D K, D L, D Where Y, A, K and L refer to the real gross value of output, the technology, the real asset and the labor nput n the local enterprse. α and β refer to the contrbuton of captal and labor to output. The suffx D refers to the local enterprses. If the foregn nvested enterprses have nduced the ntra-ndustral technology spllovers, the technology of the local enterprses (A) wll be a functon of the foregn enterprses. So, n ths paper, the technology of the local enterprses wll be expressed as a functon of the gross output of the foregn nvested enterprses. And equaton (1) could be modfed as: (2) α β Y, D = f ( Y, F ) K, D L, D Where Y,F s the real value of the foregn nvested enterprse s output, and A = f Y ). And, f (,F there exst ntra-ndustral technology spllovers from the foregn nvested enterprses, we 4

6 ANZAM 2009 Page 6 of 20 have f ()> 0. We assume the local enterprse has technology functon wth the followng form: γ (3) A = TECH Y, 0, F Where TECH, 0 s the technology of the local enterprse n the -th ndustry wthout the ntra-ndustral technology spllovers from the foregn nvested enterprses, and γ s the ntra-ndustral spllovers coeffcent from the foregn nvested enterprses n the -th ndustry. Snce our am s to study the ntra-ndustral technology spllovers, we wll assume that there s no cross-sectonal dfference n the contrbutons of captal and labor to output, so we can elmnate the suffx for K and L n equaton (1). Wth equaton (2) and (3), we can get a functon to measure the ntra-ndustral spllovers. Use the lower case to represent the logarthm form of the above varables, we can get: (4) y, D = tech,0 + γ y, F + α k D + β ld In ths paper, we wll use the fxed effect panel data model to estmate equaton (4), and test the effectveness of the fxed effect model wth the fxed effect testng methods. To make thngs easer, we assume that γ has cross-sectonal effect. If there are sgnfcant technology spllovers from the foregn nvested enterprses to the local enterprses n the same ndustry, γ wll be statstcally sgnfcant. In addton, f there s a cross-sectonal effect n the ntra-ndustral technology spllovers, γ wll vary n dfferent ndustres. What s more, snce the foregn nvested enterprses may select the ndustres wth a larger market and output n the host country, y, F n the rght-hand sde of equaton (4) may be nfluenced by D y, n the left-hand sde of equaton (4), so there maybe the problem of endogenety n equaton (4). To overcome the problem of endogenety, we wll use two-stage-least-square (TSLS) method to check the 5

7 Page 7 of 20 ANZAM 2009 robustness of the fxed effect estmaton. 2. Analyss on the Determnants of the Intra-ndustral Technology Spllovers Based on the analyss of equaton (4) and some extant researches, we wll study the nfluence of the advantage of backwardness (Gerschenkron, 1962; Kuznets, 1973) (Laggard), the research and development (R&D), the labor factor (Grffth, 2000; Gorg & Greenaway, 2004) (Labor) and the market stuaton (Blomstrom, 1986; Koko, 1994) (Market) on the ntra-ndustral spllovers. Chna s a developng economy wth a lot of unqueness. Besdes the general determnants of the ntra-ndustral spllovers, n Chna, there must be some other mportant determnants. So, n ths paper, we have consdered the ndcators such as export and ndustral clusterng. The basc model s: (5) γ = c0 + c1 Laggard + c2 RD+ c3 Labor+ c4 Market + c j X, j + ε Where X j refers to the j-th determnant, ε s the resdual, and ε ~ d(0, σ ), where σ s the standard devaton. In equaton (5), γ s the spllovers coeffcent estmated wth the panel data model, whch measures actually the average spllovers of the -th ndustry n the samplng perod. So, to be consstent, j all the ndependent varables n equaton (5) wll be the average values n the samplng perod. In dfferent ndustres, the spllovers coeffcents are dfferent. It s more mportant to study how to qucken the ntra-ndustral technology spllovers n the ndustres wth weaker spllovers. To fnd the dfferent mpacts of the determnants n dfferent ndustres, we wll estmate equaton (5) wth the quantle regresson method. Quantle regresson s a natural extenson of classcal least squares estmaton of condtonal mean models to the estmaton of an ensemble of models for condtonal quantle functons. In quantle regresson, the mpact of the ndependent varables can vary wth the dfferent dstrbuton of the dependent varable. Actually, n ths paper, the quantle regresson estmator 6

8 ANZAM 2009 Page 8 of 20 s the soluton to the followng mnmzaton problem (Koenker & Hallock, 2001): (6) mn q [ γ ζ( x, C) ] C τ Where C s the regresson coeffcents, x s the vector of the ndependent varables, q τ s the functon determned by the quantle τ. Dfferent estmaton results could be acheved by selectng dfferent quantle. The results wth a low quantle show the mpacts of the determnants n the ndustres wth weaker ntra-ndustral technology spllovers. 3. Data Descrpton In estmaton of equaton (4), we wll use the data of Chna s 28 two-dgt manufacturng ndustres. The data nclude the local enterprses real value of producton, ther real total asset, the real value of producton of the foregn enterprses and the labor of the local enterprses, etc. Besdes, n the TSLS estmaton, the nstrumental varables nclude the real assets and the labor of the foregn nvested enterprses of the prevous year. In our quantle regresson for equaton (5), the varables nclude the ndcators of advantage of backwardness, the R&D ndcator, the human resources ndcators, the market nsttuton ndcators, and the ndustral clusterng ndcator, the export ndcator. In ths paper, we wll use the large and medum enterprses value of producton to the total value of the ndustry (BMR), and the state-owned enterprses and the state holdng enterprses (SOEs) weght n the ndustres(nr) as the market nsttuton ndcators, the logarthm of the local enterprses total labor nput (DLAB) to measure the human captal, and use the dfference of the labor productvty between the multnatonal corporatons nvested n Chna and the local enterprses (TECHGAP) to measure the advantage of backwardness for the local enterprses, use the R&D expendture of the local large and medum enterprses to ther total producton (RDYR), and the rato of the R&D employees of the local large and medum enterprses to 7

9 Page 9 of 20 ANZAM 2009 ther total labor nput (BRLR) as the R&D ndcator. To study the mportance of ndustral clusterng and export n Chna s manufacturng ndustres, we wll use the spatal GINI coeffcents (Krugman, 1991) to reflect the degree of the ndustral clusterng (ICLUS) of the manufacturng ndustres and the rato of export of each ndustry to ther total value of producton (EXYR) as the export ndcator. To avod the possble abnormal nfluence caused by the 1997 Asan Fnancal Crss, we have studed the perod from 1999 to All the data are from the relevant verson of Chna Statstcs Yearbook and Chna Industral Economc Yearbook. IV. EMPIRICAL ANALYSIS 1. Estmaton of Spllovers Coeffcents The fxed effect model and the TSLS method have been adopted respectvely to estmate equaton (4). In both models, the spllovers coeffcents of all ndustres are sgnfcant. The estmated γ values are reported n Table 1. The F-test and Ch-square test of the cross-sectonal fxed effect are both sgnfcant at 1% level, whch ndcates that there does exst cross-sectonal effect n equaton (4), and that t s reasonable to estmate wth a fxed effect model. From Table 1, we can fnd that wth both the fxed effect model and TSLS model, the foregn nvested enterprses do have a sgnfcant mpact on the local enterprses n the same ndustres. From the spllovers coeffcents, t can be found that n the 28 manufacturng ndustres, the mean value of the ntra-ndustral technologcal coeffcents ( γ ) s It means that wth one unt ncrease of the logarthm of the real value of the foregn nvested enterprses producton, the logarthm of the real value of the local enterprses producton wll ncrease by unt. In all the manufacturng ndustres, only the spllovers coeffcent of tobacco manufacturng ndustry s negatve, whle the spllovers coeffcents of all the other ndustres are postve. It s because the manufacturng of tobacco s an ndustry domnated by SOEs, where the local enterprses are the 8

10 ANZAM 2009 Page 10 of 20 monopoles. Wth the entry of the foregn captal, the local enterprses market share has been reduced, whch has a negatve mpact on the local enterprses, so the spllovers coeffcent s negatve. Besdes, n Table 1, the spllovers coeffcents vary n dfferent ndustres, whch means that there are dfferent mpacts of foregn captal on Chnese local manufacturng ndustres and that the ntra-ndustral technology spllovers have a strong cross-sectonal effect. In other developng countres, t s the case too (Tomohara &Yokota, 2007). [Insert Table 1] To test whether the fxed effect model and the TSLS method are consstent, we have done the equalty test of the coeffcents. The results are reported n Table 2. In Table 2, all the four tests adopted could not reject the null hypothess that the fxed effect model and the TSLS method are consstent, whch means that there s no sgnfcant dfference between the spllovers coeffcents estmated through the above two methods. To make the followng analyss more convenent, we wll select the spllovers coeffcents of the fxed effect model for the further analyss. [Insert Table 2] 2. Analyss on the Determnants of the Intra-ndustral Technology spllovers To analyze the causes of the dfferent ntra-ndustral spllovers for the ndustres wth a smallerγ, we wll try to answer whether the advantage of backwardness, the R&D actvtes, the human resources and the market stuaton have sgnfcant mpacts on the ntra-ndustral spllovers n the ndustres wth weaker spllovers accordng to equaton (5). Snce the varables for analyss may have a hgh correlaton, whch may lead to a serous collnearty problem n the estmaton, we wll have the correlaton analyss at frst. The results have been reported n Table 3. [Insert Table 3] 9

11 Page 11 of 20 ANZAM 2009 Table 3 ndcates that there s a sgnfcantly hgh correlaton between the rato of the local enterprses R&D expendture to ther total producton (RDYR) and the rato of the large and medum local enterprses R&D employees to ther total employees (BRLR). The correlaton coeffcent s as hgh as There are relatvely hgh correlaton among the weght of the large and medum enterprses n the local enterprses (BMR), the weght of SOEs n the ndustry (NR) and the ndustral clusterng (ICLUS). The correlaton coeffcents are all above 0.6. In addton, there are also sgnfcant postve correlatons between the rato of export to the total ndustral producton (EXYR) and the weght of the SOEs n the ndustry (NR). The correlaton coeffcent s above 0.5. To overcome the collnearty problem, we wll add the varables wth hgh correlaton one by one. We wll use the weghts of large and medum enterprses and the SOEs to represent the nsttutonal varables respectvely to estmate equaton (5) wth quantle regresson method. We found that some coeffcents wll be sgnfcant only when the quantle s no bgger than 0.2. Ths ndcates that n the ndustres wth weaker ntra-ndustral technology spllovers, there wll be some varables nfluencng the ntra-ndustral technology spllovers. But, n the ndustres wth strong ntra-ndustral technology spllovers, because the local enterprses have stable absorptve capacty and the ntra-ndustral technology spllovers are qute stable, the above varables have no sgnfcant mpact. Table 4 has reported the quantle regresson results wth a quantle of 0.2. The tests show that n the ndustres wth weaker ntra-ndustral technology spllovers, the hgh weghts of large and medum enterprses and SOEs have barrcaded the ntra-ndustral technology spllovers, whle the advantage of backwardness has a sgnfcant postve role. The R&D and the human resources of Chnese local enterprses have no sgnfcant mpact on the ntra-ndustral technology spllovers. Because of the unfavorable nnovaton envronment, the lmted R&D expendture n the local enterprses has 10

12 ANZAM 2009 Page 12 of 20 been spent manly for other purposes than actual R&D actvtes. So, there s no sgnfcant relatonshp between R&D expendture and the spllovers of the local enterprses. The reason for the nsgnfcant mpact of labor s partly that n Chna, most of the manufacturng ndustres are labor ntensve ndustres, so human resources are not so rch though there are a large number of labors. [Insert Table 4] Table 4 ndcates that the mpact of the ndustral clusterng on the ntra-ndustral technology spllovers s only restrcted to the 20% ndustres whch have the weakest ntra-ndustral technology spllovers. For the ndustres wth relatvely strong ntra-ndustral technology spllovers, the ndustral clusterng has no sgnfcant mpact. For 20% ndustres whch have the weakest ntra-ndustral technology spllovers, the excessve concentraton of the SOEs has ncreased the degree of monopoly, whch s unfavorable for the ntra-ndustral technology spllovers. On the contrary, f the ndustral clusterng s not the result of the SOEs concentraton but the result of the market, the ndustral clusterng wll lead to ncreasng margnal returns and enhance the local enterprses absorptve capacty n the ndustres, whch wll be favorable for the ntra-ndustral technology spllovers. Through the emprcal analyss, we can get the followng conclusons: frst, there s a strong ndustral effect of the ntra-ndustral technology spllovers from the multnatonal corporatons to the local enterprses n Chna s manufacturng ndustres; second, for the ndustres wth the weakest ntra-ndustral technology spllovers, the advantage of backwardness, the market stuaton and the ndustral clusterng have a stronger mpact on the ntra-ndustral technology spllovers, whle these varables have nsgnfcant mpact on the ndustres wth stronger ntra-ndustral technology spllovers. 11

13 Page 13 of 20 ANZAM 2009 V. CONCLUSION Have the foregn drect nvestment nflows to Chna nduced the ntra-ndustral technology spllovers and ncreased the local enterprses compettveness? What has barrcaded the ntra-ndustral technology spllovers to some Chnese manufacturng ndustres? Ths s an ssue concernng Chna s foregn captal utlzaton strategy. To study the determnants of the ntra-ndustral technology spllovers to Chna s manufacturng ndustres, we have selected the data of 28 Chna s manufacturng ndustres from 1999 to 2007, measured the ntra-ndustral technology spllovers coeffcents, and studed the major determnants of the ntra-ndustral technology spllovers n Chna s manufacturng ndustres wth the quantle regresson method. Our results ndcate that there s a sgnfcant cross-sectonal effect n the ntra-ndustral technology spllovers. Most ndustres have got postve ntra-ndustral spllovers from the foregn nvested enterprses, but there are sgnfcant ndustral dfferences n the ntra-ndustral technology spllovers. For the ndustres wth the weakest ntra-ndustral technology spllovers, advantage of backwardness could ncrease the local enterprses absorptve capacty effectvely, whle f there are more large and medum enterprses and SOEs n the ndustry, the ndustry wll be less compettve and t wll be harder for the ntra-ndustral technology spllovers be happen. The mpact of the ndustral clusterng wll depend on ts type. The ndustral clusterng formed as the result of the concentraton of SOEs wll barrcade the ntra-ndustral technology spllovers. In addton, the local enterprses R&D and the labor force have no sgnfcant mpact on the ntra-ndustral technology spllovers. Our results are mportant for both the polcy makers and the Chnese local enterprses. The Chnese government has been tryng to encourage the technologcal spllovers from the foregn nvested enterprses to the local enterprses, and the Chnese local enterprses are strugglng to mprove ther 12

14 ANZAM 2009 Page 14 of 20 compettveness. So t s n urgent need to fnd the determnants of the ntra-ndustral technologcal spllovers, especally the factors barrcadng the technologcal spllovers n some ndustres. Our contrbuton s that we have adopted the quantle regresson method, so we can focus on the determnants of the low technologcal spllovers n some ndustres, whle the other researches concernng FDI spllovers n Chna have only studed the average ntra-ndustral technologcal spllovers of all ndustres. But for lack of data, we have not studed the ssue wth enterprses data. Further research ams at the mpact of Chnese local enterprses corporate governance and the foregn nvested enterprses characterstcs on the ntra-ndustral technologcal spllovers n dfferent ndustres. References Chen, Taotao, Intrnsc mechansm of FDI ntra-ndustry spllover effect n Chna. (n Chnese), World Economy 26(9), Chen Taotao, Fan Mngx & Ma Wenxang, Emprcal study on determnants of FDI s ntra-ndustry effect n Chna (n Chnese). Journal of Fnancal Research 24(5), Chen Taotao &Chen Jao, Industry growth and FDI ntra-ndustry spllover n Chna (n Chnese). Journal of Economc Research 52(6), Atken, B.J. and Harrson, A., Do domestc frms beneft from drect foregn nvestment? Evdence from Venezuela. Amercan Economc Revew 89(3),

15 Page 15 of 20 ANZAM 2009 Blomstrom, M., Host country benefts of foregn nvestment. NBER Workng Ppaer Blomström, M., Foregn nvestment and productve effcency: The case of Mexco. Journal of Industral Economcs 15, Blomström, M. & Kokko, A., The mpact of foregn nvestment on host countres: A revew of the emprcal evdence. Polcy Research Workng Paper No Blomström, M. & Sjohom, F., Technology transfer and spllover: Does local partcpaton wth multnatonals matter? European Economc Revew 43, Cohen, W & D. Levnthal, Innovaton and learnng: The two faces of R&D. Economc Journal 99, Crespo-Cuaresma, J., N. Foster & J., Scharler, On the determnants of absorptve capacty: Evdence from OECD countres. Workshops No. 2. Crespo, N., I. Proença & M. Paula Fontoura, FDI spllovers at regonal level: Evdence from Portugal. Workng Papers 2007/28. Djankov, S. and B. Hoekman, Foregn nvestment and productvty growth n Czech enterprses. The World Bank Economc Revew 1, Gerschenkron, A, Economc backwardness n hstorcal perspectve, Cambrdge, MA: Harvard Unversty Press. Görg, H. and Strobl, E., Multnatonal companes, technology spllovers and frm survval: Evdence from Irsh manufacturng. 2000/12, Centre for Research on Globalzaton and Labour markets, School of Economcs, Unversty of Nottngham. Görg, H. and Greenaway, D., Foregn drect nvestments and ntra-ndustry spllovers. Leverhulme Centre for research on Globalzaton and Economc Polcy, Unversty of Nottngham, 14

16 ANZAM 2009 Page 16 of 20 Paper prepared for Unted Natons Economc Commsson for UNECE/EBRD, Geneva, December 3 rd. Grffth, R., S., Reddng, and J. Van Reenen, Mappng two faces of R&D: productvty growth n a panel of OECD Countres. Mmeo. Haddad, M. and Harrson, A., Are there postve spllovers from drect foregn nvestments? Evdence from panel data for Morocco. Journal of Development Economcs. 42, Koenker, R., and G. Bassett, Regresson quantles. Econometrca 46, Koenker, R. & Hallock, K., Quantle regresson: An ntroducton. Journal of Economc Perspectves 15, Kokko, A., Technology, market charaterstcs, and spllovers. Journal of Development Economcs 43, Krugman, P., Increasng returns and economc geography. Journal of Poltcal Economy 99(3), Kuznets, S., Modern economc growth: Fndngs and reflectons. Amercan Economc Revew 68, Parente, S. L. & E. Prescott, Monopoly rghts: A barrer to rches. Amercan Economc Revew 89, Parente, S. L. & E. Prescott, Barrers to rches. MIT Press. Smarzynska, B., Determnants of spllovers from foregn drect nvestment through backward lnkages. Mmeo, World Bank. Tomohara, A. &K., Yokota, Industry characterstcs and FDI nduced technology spllovers. Workng Paper Seres Vol

17 Page 17 of 20 ANZAM 2009 Table 1 Intra-ndustral Spllovers Coeffcents ( γ ) Fxed effect TSLS Processng of Food from Agrcultural Products Manufacture of Foods Manufacture of Beverages Manufacture of Tobacco Manufacture of Textle Manufacture of Textle Wearng Apparel, Footware and Caps Manufacture of Leather, Fur, Feather and Related Products Processng of Tmber, Manufacture of Wood, Bamboo, Rattan, Palm and Straw Products Manufacture of Furnture Manufacture of Paper and Paper Products Prntng, Reproducton of Recordng Meda Manufacture of Artcles For Culture, Educaton and Sport Actvtes Processng of Petroleum, Cokng, Processng of Nuclear Fuel Manufacture of Raw Chemcal Materals and Chemcal Products Manufacture of Medcnes Manufacture of Chemcal Fbers Manufacture of Rubber Manufacture of Plastcs Manufacture of Non-metallc Mneral Products

18 ANZAM 2009 Page 18 of 20 Smeltng and Pressng of Ferrous Metals Smeltng and Pressng of Non-ferrous Metals Manufacture of Metal Products Manufacture of General Purpose Machnery Manufacture of Specal Purpose Machnery Manufacture of Transport Equpment Manufacture of Electrcal Machnery and Equpment Manufacture of Communcaton Equpment, Computers and Other Electronc Equpment Manufacture of Measurng Instruments and Machnery for Cultural Actvty and Offce Work Adjusted-R D.W. statstcs F statstcs Cross-secton F ** / Cross-secton Ch-square ** / *p < 0.05; **p < 0.01 Note: all the spllovers coeffcents are sgnfcant at 5% level. Table 2 Equalty Test Probablt Method df Value y t-test Satterthwate-Welch

19 Page 19 of 20 ANZAM 2009 t-test Anova F-test (1, 54) (1, Welch F-test* ) Table 3 Correlaton Analyss of the Independent Varables TECHGAP RDYR BRLR DLAB BMR NR ICLUS EXYR TECHGAP 1 RDYR BRLR * 1 DLAB BMR * 0.556* NR * * 1 ICLUS * 0.644* 1 EXYR * * *p < 0.05; **p < 0.01 Table 4 Quantle Regresson Results (quantle=0.2) Model I Model II Model III Model IV C TECHGAP ** * ** * RDYR * BMR * / / / * NR / * / / 18

20 ANZAM 2009 Page 20 of 20 LOG(DLAB) * * ICLUS / / * / * ICLUS-NR / / / * Pseudo R-squared Adjusted R-squared *p < 0.05; **p <