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Regulation and product innovation: the intermediate role of resource reallocation

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  • Fang Wang

    (Institutes of Science and Development, Chinese Academy of Sciences)

  • Xiaoyong Dai

    (School of Economics and Finance, Xi’an Jiaotong University)

Abstract

Regulation has been identified as an important determinant of the innovation activities of companies, industries, and entire economies. As such, this paper investigates the potential effects of regulation on the innovative performance of firms in China. We identify an inverted U-shaped relationship between regulation and product innovation performance. That is, in China, regulation plays a positive role in promoting innovation: the more actively firms deal with regulations within certain threshold levels, the better their product innovation performance is. However, after reaching the threshold, the relationship reverses. Further, actively coping with regulations facilitates firms’ access to financial resources, which in turn promotes product innovation. Meanwhile, output distortion significantly impedes product innovation performance. However, regulation does not show a measurable impact on output distortion.

Suggested Citation

  • Fang Wang & Xiaoyong Dai, 2020. "Regulation and product innovation: the intermediate role of resource reallocation," Journal of Evolutionary Economics, Springer, vol. 30(4), pages 1035-1061, September.
    • Handle: RePEc:spr:joevec:v:30:y:2020:i:4:d:10.1007_s00191-020-00676-6
    DOI: 10.1007/s00191-020-00676-6
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