The impact of R&D efficiency on economic growth in China: non-linear threshold effects
Abstract
This study uses a threshold estimation technique to examine whether the effect of R&D efficiency on economic growth in China differs according to the level of financial development. The results broadly confirm a nonlinear relationship between R&D efficiency and economic growth due to the dynamic and static threshold effects of financial development and R&D expenditure. This finding suggests that R&D efficiency does not significantly impact growth in the low and middle-financial development provinces at conventional levels. Hence, the benefit of R&D efficiency in China could stem from the positive effect of R&D in highly financially developed provinces. Though R&D efficiency is poor, R&D investment still enhances economic growth because the amount of R&D investment is enormous. This finding suggests that while it is most important to not unthinkingly expand R&D gross investment, it is also necessary to make full use of R&D investment by improving R&D efficiency.
First published online 29 May 2024
Keyword : R&D efficiency, R&D investment, economic growth, SBM-DEA model, panel threshold model, dynamic panel threshold model
How to Cite
Liao, C.-S., & Li, X. (2024). The impact of R&D efficiency on economic growth in China: non-linear threshold effects. Technological and Economic Development of Economy, 30(5), 1205–1228. https://doi.org/10.3846/tede.2024.20166
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Li, X. (2009). China’s regional innovation capacity in transition: An empirical approach. Research Policy, 38(2), 338–357. https://doi.org/10.1016/j.respol.2008.12.002
Li, G., Wang, P., & Pal, R. (2022). Measuring sustainable technology R&D innovation in China: A unified approach using DEA-SBM and projection analysis. Expert Systems with Applications, 209, Article 118393. https://doi.org/10.1016/j.eswa.2022.118393
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Rodríguez-Pose, A. (2001). Is R&D investment in lagging areas of Europe worthwhile? Theory and empirical evidence. Paper in Regional Science, 80(3), 275–295. https://doi.org/10.1111/j.1435-5597.2001.tb01800.x
Romer, P. M. (1990). Endogenous technological change. Journal of Political Economy, 98(5), S71–S102. https://doi.org/10.1086/261725
Roodman, D. (2009). A note on the theme of too many instructions. Oxford Bulletin of Economics and Statistics, 71(1), 135–158. https://doi.org/10.1111/j.1468-0084.2008.00542.x
Schumpeter, J. A. (1942). Capitalism, socialism, and democracy. University of Illinois at Urbana-Champaign’s Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship. SSRN. https://ssrn.com/abstract=1496200
Shen, C. H., & Lee, C. C. (2006). Same financial development yet different economic growth: why? Journal of Money, Credit and Banking, 38(7), 1907–1944. https://doi.org/10.1353/mcb.2006.0095
Shi, Z., Wu, Y., Chiu, Y. H., Shi, C., & Na, X. (2022). Comparing the efficiency of regional knowledge innovation and technological innovation: a case study of China. Technological and Economic Development of Economy, 28(5), 1392–1418. https://doi.org/10.3846/tede.2022.17125
Sokolov-Mladenović, S., Cvetanović, S., & Mladenović, I. (2016). R&D expenditure and economic growth: EU28 evidence for the period 2002–2012. Economic Research-Ekonomska Istraživanja, 29(1), 1005–1020. https://doi.org/10.1080/1331677X.2016.1211948
Teixeira, A., & Queirós, A. (2016). Economic growth, human capital and structure change: A dynamic panel data analysis. Research Policy, 45, 1636–1648. https://doi.org/10.1016/j.respol.2016.04.006
Tone, K. (2002). A slacks-based measure of super-efficiency in data envelopment analysis. European Journal of operation Research, 143(1), 32–41. https://doi.org/10.1016/S0377-2217(01)00324-1
Valderrama, D. (2003). Financial development, productivity, and economic growth. FRBSF Economic letter, 18, 1–3. http://www.frbsf.org/publications/economics/letter/2003/el2003-18.html
Wang, E. C., & Huang, W. (2007). Relative efficiency of R&D activities: A cross-country study accounting for environmental factors in the DEA approach. Research Policy, 36, 260–273. https://doi.org/10.1016/j.respol.2006.11.004
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Wu, M., Wang, X., Chen, X., & Cao, Y. (2020). The threshold effect of R&D investment on regional economic performance in China considering environmental regulation. Technology Analysis and Strategic Management, 32(7), 851–868. https://doi.org/10.1080/09537325.2020.1715362
Zeng, W., Li, L., & Huang, Y. (2021). Industrial collaborative agglomeration, marketization, and green innovation: Evidence from China’s provincial panel data. Journal of Cleaner Production, 279, Article 123598. https://doi.org/10.1016/j.jclepro.2020.123598
Zhang, A., Zhang, Y., & Zhao, R. (2003). A study of the R&D efficiency and productivity of Chinese firms. Journal of Comparative Economics, 31(3), 444–464. https://doi.org/10.1016/S0147-5967(03)00055-6
Zhang, L., Mu, R., Hu, S., Yu, J., & Zhang, J. (2022). Industrial coagglomeration, technological innovation, and environmental pollution in China: Life-cycle perspective of coagglomeration. Journal of Cleaner Production, 362, Article 132280. https://doi.org/10.1016/j.jclepro.2022.132280
Zhu, P. F., & Xu, W. M. (2003). On the impact of government’s S&T incentive policy on the R&D input and its patent output of large and medium-sized industrial enterprises in Shanghai. Economic Research Journal, 6, 45–53.
Alvarez-Pelaez, M. J., & Groth, C. (2005). Too little or too much R&D? European Economic Review, 49(2), 437–456. https://doi.org/10.1016/S0014-2921(03)00045-X
Ang, J. B., & Madsen, J. B. (2011). Can second-generation endogenous growth models explain the productivity trends and knowledge production in the Asian miracle economies? The Review of Economics and Statistics, 93(4), 1360–1373. https://doi.org/10.1162/REST_a_00126
Bai, J. (2013). On regional innovation efficiency: Evidence from Panel data of China’s different provinces. Regional Studies, 47(5), 773–788. https://doi.org/10.1080/00343404.2011.591784
Baumann, J., & Kritikos, A. S. (2016). The link between R&D, innovation and productivity: Are micro firms different? Research Policy, 45(6), 1263–1274. https://doi.org/10.1016/j.respol.2016.03.008
Blanco, L. R., James, J. G., & Prieger, E. (2016). The impact of research and development on economic growth and productivity in the U.S. States. Southern Economic Journal, 82(3), 914–934. https://doi.org/10.1002/soej.12107
Bodman, P., & Le, T. (2013). Assessing the roles that absorptive capacity and economic distance play in the foreign direct investment-productivity growth nexus. Applied Economics, 45(8), 1027–1039. https://doi.org/10.1080/00036846.2011.613789
Celli, V., Cerqua, A., & Pellegrini, G. (2021). Does R&D expenditure boost economic growth in lagging regions? Social Indicators Research. https://doi.org/10.1007/s11205-021-02786-5
Chen, C., Hu, J. L., & Yang, C. H. (2011). An international comparison of R&D efficiency of multiple innovative outputs: The role of the national innovation system. Innovation, 13(3), 341–360. https://doi.org/10.5172/impp.2011.13.3.341
Cullmann, A., Schmidt-Ehmcke, J., & Zloczysti, P. (2012). R&D efficiency and barriers to entry: A two stage semi-parametric DEA approach. Oxford Economic Papers, 64(1), 176–196. https://doi.org/10.1093/oep/gpr015
Dobrzanski, P., & Bobowski, S. (2020). The efficiency of R&D expenditures in ASEAN Countries. Sustainability, 12(7), Article 2686. https://doi.org/10.3390/su12072686
Ellison, G., Glaeser, E., & Kerr, W. (2010). What causes industry agglomeration? Evidence from coagglomeration patterns. American Economic Review, 100(3), 1195–1213. https://doi.org/10.1257/aer.100.3.1195
Frantzen, D. (2000). R&D, human capital and international technology spillovers: A cross-country analysis. The Scandinavian Journal of Economics, 102(1), 57–75. https://doi.org/10.1111/1467-9442.00184
Griliches, Z. (1990). Patent statistics as economic indicators: A survey. Journal of Economic Literature, 28(4), 1661–1707. https://doi.org/10.3386/w3301
Hansen, B. E. (1999). Threshold effects in non-dynamic panels: Estimation, testing, and inference. Journal of Econometrics, 93(2), 345–368. https://doi.org/10.1016/S0304-4076(99)00025-1
Hassan, M. K., Sanchez, B., & Yu., J. S. (2011). Financial development and economic growth: New evidence from panel data. The Quarterly Review of Economics and Finance, 51(1), 88–104. https://doi.org/10.1016/j.qref.2010.09.001
Ho, S., & Saadaoui, J. (2022). Bank credit and economic growth: A dynamic threshold panel model for ASEAN countries. International Economics, 170, 115–128. https://doi.org/10.1016/j.inteco.2022.03.001
Huang, H., & Xu, C. (1998). Financing mechanisms and R&D investment (William Davidson Institute Working Papers Series 180). William Davidson Institute at the University of Michigan.
Inekwe, J. N. (2015). The contribution of R&D expenditure to economic growth in developing economies. Social Indicators Research, 124(3), 727–745. https://doi.org/10.1007/s11205-014-0807-3
Kacprzyk, A., & Doryn, W. (2017). Innovation and economic growth in old and new member states of the European Union. Economic Research-Ekonomska Istraživanja, 30(1), 1724–1742. https://doi.org/10.1080/1331677X.2017.1383176
Khan, M. S., & Senhadji, A. (2003). Financial development and economic growth: A review and new evidence. Journal of African Economies, 12, 89–110. https://doi.org/10.1093/jae/12.suppl_2.ii89
Kremer, S., Bick, A., & Nautz, D. (2013). Inflation and growth: New evidence from a dynamic panel threshold analysis. Empirical Economics, 44, 861–878. https://doi.org/10.1007/s00181-012-0553-9
Law, S. H., Azman-Saini, W. N. W., Mansor, H., & Ibrahim, M. H. (2013). Institution quality thresholds and the finance-growth nexus. Journal of Banking and Finance, 37(12), 5373–5381. https://doi.org/10.1016/j.jbankfin.2013.03.011
Levine, R. (1997). Financial development and economic growth: Views and agenda. Journal of Economic Literature, 35(2), 688–726. https://www.jstor.org/stable/2729790
Li, X. (2009). China’s regional innovation capacity in transition: An empirical approach. Research Policy, 38(2), 338–357. https://doi.org/10.1016/j.respol.2008.12.002
Li, G., Wang, P., & Pal, R. (2022). Measuring sustainable technology R&D innovation in China: A unified approach using DEA-SBM and projection analysis. Expert Systems with Applications, 209, Article 118393. https://doi.org/10.1016/j.eswa.2022.118393
Lucas, R. E. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1), 3–42. https://doi.org/10.1016/0304-3932(88)90168-7
Rodríguez-Pose, A. (2001). Is R&D investment in lagging areas of Europe worthwhile? Theory and empirical evidence. Paper in Regional Science, 80(3), 275–295. https://doi.org/10.1111/j.1435-5597.2001.tb01800.x
Romer, P. M. (1990). Endogenous technological change. Journal of Political Economy, 98(5), S71–S102. https://doi.org/10.1086/261725
Roodman, D. (2009). A note on the theme of too many instructions. Oxford Bulletin of Economics and Statistics, 71(1), 135–158. https://doi.org/10.1111/j.1468-0084.2008.00542.x
Schumpeter, J. A. (1942). Capitalism, socialism, and democracy. University of Illinois at Urbana-Champaign’s Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship. SSRN. https://ssrn.com/abstract=1496200
Shen, C. H., & Lee, C. C. (2006). Same financial development yet different economic growth: why? Journal of Money, Credit and Banking, 38(7), 1907–1944. https://doi.org/10.1353/mcb.2006.0095
Shi, Z., Wu, Y., Chiu, Y. H., Shi, C., & Na, X. (2022). Comparing the efficiency of regional knowledge innovation and technological innovation: a case study of China. Technological and Economic Development of Economy, 28(5), 1392–1418. https://doi.org/10.3846/tede.2022.17125
Sokolov-Mladenović, S., Cvetanović, S., & Mladenović, I. (2016). R&D expenditure and economic growth: EU28 evidence for the period 2002–2012. Economic Research-Ekonomska Istraživanja, 29(1), 1005–1020. https://doi.org/10.1080/1331677X.2016.1211948
Teixeira, A., & Queirós, A. (2016). Economic growth, human capital and structure change: A dynamic panel data analysis. Research Policy, 45, 1636–1648. https://doi.org/10.1016/j.respol.2016.04.006
Tone, K. (2002). A slacks-based measure of super-efficiency in data envelopment analysis. European Journal of operation Research, 143(1), 32–41. https://doi.org/10.1016/S0377-2217(01)00324-1
Valderrama, D. (2003). Financial development, productivity, and economic growth. FRBSF Economic letter, 18, 1–3. http://www.frbsf.org/publications/economics/letter/2003/el2003-18.html
Wang, E. C., & Huang, W. (2007). Relative efficiency of R&D activities: A cross-country study accounting for environmental factors in the DEA approach. Research Policy, 36, 260–273. https://doi.org/10.1016/j.respol.2006.11.004
Wang, K. L., Zhang, F. Q., Xu, R. Y., Miao, Z., Cheng, Y. H., & Sun, H. P. (2023). Spatiotemporal pattern evolution and influencing factors of green innovation efficiency: A China’s city level analysis. Ecological Indicators, 146, Article 109901. https://doi.org/10.1016/j.ecolind.2023.109901
Wu, M., Wang, X., Chen, X., & Cao, Y. (2020). The threshold effect of R&D investment on regional economic performance in China considering environmental regulation. Technology Analysis and Strategic Management, 32(7), 851–868. https://doi.org/10.1080/09537325.2020.1715362
Zeng, W., Li, L., & Huang, Y. (2021). Industrial collaborative agglomeration, marketization, and green innovation: Evidence from China’s provincial panel data. Journal of Cleaner Production, 279, Article 123598. https://doi.org/10.1016/j.jclepro.2020.123598
Zhang, A., Zhang, Y., & Zhao, R. (2003). A study of the R&D efficiency and productivity of Chinese firms. Journal of Comparative Economics, 31(3), 444–464. https://doi.org/10.1016/S0147-5967(03)00055-6
Zhang, L., Mu, R., Hu, S., Yu, J., & Zhang, J. (2022). Industrial coagglomeration, technological innovation, and environmental pollution in China: Life-cycle perspective of coagglomeration. Journal of Cleaner Production, 362, Article 132280. https://doi.org/10.1016/j.jclepro.2022.132280
Zhu, P. F., & Xu, W. M. (2003). On the impact of government’s S&T incentive policy on the R&D input and its patent output of large and medium-sized industrial enterprises in Shanghai. Economic Research Journal, 6, 45–53.