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Financial Development and Innovation in China: Evidence from the Provincial Data

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  • Aoife Hanley
  • Wan-Hsin LIU
  • Andrea Vaona

Abstract

This paper investigates the role of regional financial development, in addition to FDI, for regional innovation in China, using a more recent provincial dataset and more sophisticated panel data estimation techniques than previous studies. Two aspects of regional financial system development are considered: its financial depth and government intervention in the financial system. Estimation results show that the financial depth of a region has a significantly positive effect on regional innovation (patenting) performance. This positive effect is found to be higher for minor innovations such as external design patents than for more complicated innovations such as utility model patents and invention patents. Surprisingly, estimation results do not show that government financial system intervention reduces allocative efficiency of resources which would otherwise impede regional innovation performance

Suggested Citation

  • Aoife Hanley & Wan-Hsin LIU & Andrea Vaona, 2011. "Financial Development and Innovation in China: Evidence from the Provincial Data," Kiel Working Papers 1673, Kiel Institute for the World Economy.
  • Handle: RePEc:kie:kieliw:1673
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    File URL: https://www.ifw-members.ifw-kiel.de/publications/financial-development-and-innovation-in-china-evidence-from-the-provincial-data/kwp_1673.pdf
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    More about this item

    Keywords

    regional financial system; FDI; innovation; patent; regional study; China;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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