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

  • Aoife Hanley
  • Wan-Hsin LIU
  • Andrea Vaona

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

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1673.

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Length: 35 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:kie:kieliw:1673
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