In this paper we analyze the mechanism effect of foreign direct investment on the domestic firms RD investment in the organization of vertical specialization. Then we use Chinese industrial enterprises data in 2005-2007, and test empirically the role of vertical specialization and two types of FDI on domestic RD investment decisions and the growth of RD investment scale. We found that foreign direct investment and vertical specialization in general promote the growth of Chinese enterprises RD scale. FDI distribution and different positions in vertical specialization in four different skill lev...