The economics major studied how Foreign Direct Investment inflows and privatization of enterprises in China affect the country’s innovation across industry sectors.

Yanxi Li ’16 came to Haverford from Guangdong Province in China, and when it came time for the economics major to pick a thesis topic, she turned her eyes back home. Li, who also minored in statistics, wanted to understand if Foreign Direct Investment—that is, businesses in the country in which the controlling ownership is an entity from another country—and the privatization of enterprises in China have contributed to indigenous innovation in the different provinces.

“What motivated me to do my thesis work is that I found out that there is not only a temporal relationship between FDI inflows and innovation activities in China—both have increased dramatically over the years—but also a spatial relationship, as the coastal provinces dominate the non-coastal provinces,” says Li, who measured innovation capability by the total number of patent applications received each year from each province. “In addition, not much research has examined another important development during the same time period, the privatization of state-owned enterprises. [That’s why] I was interested in incorporating both FDI and ownership structure in my study, to test whether they are correlated with innovation.”

Now that she’s graduated from Haverford, Li, who studied abroad at the London School of Economics during her junior year, is continuing her financial education. This fall, she is headed to the University of Virginia’s McIntire School of Commerce, where she will earn a master’s degree in commerce.


What were the outcomes of your research and what are its implications?

I found that FDI has a significant positive effect on innovation for all patent types and it encourages advanced innovation activities. The effect of FDI on innovation in coastal provinces is almost twice of that in the non-coastal provinces. State ownership has a more varied effect on innovation for different patent types. It promotes higher-level innovation activities, but deters less technically advanced innovation. Export intensity spurs less technical, more design-focused innovation. … It is important for the Chinese government not only to continuously encourage FDI, but also to enhance the absorptive capacities measured by education, technology infrastructure, transportation, and the development of financial system so that those excess demand for innovation will be met with true innovation capability. To promote innovation for all types of patents, both FDI and net export activities are important. To introduce more export-oriented industries and imported goods to inland provinces, and to open up the trade of goods and services in the mountainous areas in China might help to increase the innovation capability in these areas, at least at the most basic level, such as for design patents.

What is your biggest takeaway from the project?

During the process of writing my thesis, I encountered a lot of obstacles. For example, I first wanted to use firm-level data and examine FDI’s effect on innovation across industry sectors. However, because of the limitation of the dataset, I had to forsake this plan and tried to work around it. I spent a lot of time doing the data mining, and finally I found the data that I could use. Since it is the provincial-level data, I adjusted my thesis to examine the effect of FDI on innovation across regions. I realized that no matter how hard it seems or how abysmal the result is, there is always a way to solve the problem if I insist on trying and the result may be better than I expected.


“What They Learned” is a blog series exploring the thesis work of recent graduates.