IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/77998.html
   My bibliography  Save this paper

What determines misallocation in innovation? A study of regional innovation in China

Author

Listed:
  • Li, Hao-Ching
  • Lee, Wen-Chieh
  • Ko, Bo-Ting

Abstract

This paper sounds an alarm about disparate efficiencies among China’s regions in the allocation of innovation inputs. A theoretical measure of misallocation is adopted to gauge the distortions that exacerbate the inefficiency of resource allocations across geographic innovation units; these units’ usage of innovative inputs reveals the level of misallocations prevalent within the Chinese economy. The measure of innovation misallocation is computed by utilizing a micro dataset based on information from the China Statistical Yearbook for Science and Technology (CSYST) from 1999 to 2012. In addition, this paper probes the factors that co-move with China’s innovation resource misallocations. We find that, although an advanced financial market is beneficial to innovation efficiency in China, both the government’s extensive development of transportation infrastructure and the preferential treatment given to state-owned enterprises (SOEs) and foreign-invested enterprises (FIEs) negatively correlate with innovation efficiency. We conclude that emerging economies that are experiencing R&D input expansion, such as China, should be cautious in ensuring efficient resource allocations.

Suggested Citation

  • Li, Hao-Ching & Lee, Wen-Chieh & Ko, Bo-Ting, 2016. "What determines misallocation in innovation? A study of regional innovation in China," MPRA Paper 77998, University Library of Munich, Germany, revised 03 Dec 2016.
  • Handle: RePEc:pra:mprapa:77998
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/77998/1/MPRA_paper_77998.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Chen, Kaihua & Guan, Jiancheng, 2011. "Mapping the functionality of China's regional innovation systems: A structural approach," China Economic Review, Elsevier, vol. 22(1), pages 11-27, March.
    2. Jones, Charles I & Williams, John C, 2000. "Too Much of a Good Thing? The Economics of Investment in R&D," Journal of Economic Growth, Springer, vol. 5(1), pages 65-85, March.
    3. Joe Peek & Eric S. Rosengren, 2005. "Unnatural Selection: Perverse Incentives and the Misallocation of Credit in Japan," American Economic Review, American Economic Association, vol. 95(4), pages 1144-1166, September.
    4. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-365, June.
    5. Quamrul H. Ashraf & David N. Weil & Joshua Wilde, 2013. "The Effect of Fertility Reduction on Economic Growth," Population and Development Review, The Population Council, Inc., vol. 39(1), pages 97-130, March.
    6. Benjamin Moll, 2014. "Productivity Losses from Financial Frictions: Can Self-Financing Undo Capital Misallocation?," American Economic Review, American Economic Association, vol. 104(10), pages 3186-3221, October.
    7. repec:fth:harver:1473 is not listed on IDEAS
    8. Cooke, Philip & Gomez Uranga, Mikel & Etxebarria, Goio, 1997. "Regional innovation systems: Institutional and organisational dimensions," Research Policy, Elsevier, vol. 26(4-5), pages 475-491, December.
    9. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1403-1448.
    10. Zvi Griliches, 1998. "Patent Statistics as Economic Indicators: A Survey," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 287-343, National Bureau of Economic Research, Inc.
    11. Uras, R.B. & Wang, P., 2014. "Techniques Choice, Misallocation and Total Factor Productivity," Other publications TiSEM 5a3d8436-c929-49f3-a990-3, Tilburg University, School of Economics and Management.
    12. Abhijit V. Banerjee & Benjamin Moll, 2010. "Why Does Misallocation Persist?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 189-206, January.
    13. Diego Restuccia & Richard Rogerson, 2008. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 707-720, October.
    14. Brandt, Loren & Van Biesebroeck, Johannes & Zhang, Yifan, 2012. "Creative accounting or creative destruction? Firm-level productivity growth in Chinese manufacturing," Journal of Development Economics, Elsevier, vol. 97(2), pages 339-351.
    15. Goto, Akira & Suzuki, Kazuyuki, 1989. "R&D Capital, Rate of Return on R&D Investment and Spillover of R&D in Japanese Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 555-564, November.
    16. Sun, Yifei, 2003. "Determinants of foreign patents in China," World Patent Information, Elsevier, vol. 25(1), pages 27-37, March.
    17. Cincera, Michele, 1997. "Patents, R&D, and Technological Spillovers at the Firm Level: Some Evidence from Econometric Count Models for Panel Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(3), pages 265-280, May-June.
    18. Kaihua Chen & Jiancheng Guan, 2012. "Measuring the Efficiency of China's Regional Innovation Systems: Application of Network Data Envelopment Analysis (DEA)," Regional Studies, Taylor & Francis Journals, vol. 46(3), pages 355-377, April.
    19. Eric Bartelsman & John Haltiwanger & Stefano Scarpetta, 2013. "Cross-Country Differences in Productivity: The Role of Allocation and Selection," American Economic Review, American Economic Association, vol. 103(1), pages 305-334, February.
    20. Virgiliu Midrigan & Daniel Yi Xu, 2014. "Finance and Misallocation: Evidence from Plant-Level Data," American Economic Review, American Economic Association, vol. 104(2), pages 422-458, February.
    21. Hausman, Jerry & Hall, Bronwyn H & Griliches, Zvi, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," Econometrica, Econometric Society, vol. 52(4), pages 909-938, July.
    22. Francisco Buera & Benjamin Moll & Yongseok Shin, 2013. "Well-Intended Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 216-230, January.
    23. Griliches, Zvi, 1980. "R & D and the Productivity Slowdown," American Economic Review, American Economic Association, vol. 70(2), pages 343-348, May.
    24. Junhong Bai, 2013. "On Regional Innovation Efficiency: Evidence from Panel Data of China's Different Provinces," Regional Studies, Taylor & Francis Journals, vol. 47(5), pages 773-788, May.
    25. Zvi Griliches, 1998. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 17-45, National Bureau of Economic Research, Inc.
    26. Andrew Atkeson & Patrick J. Kehoe, 2005. "Modeling and Measuring Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1026-1053, October.
    27. Boyan Jovanovic, 2014. "Misallocation and Growth," American Economic Review, American Economic Association, vol. 104(4), pages 1149-1171, April.
    28. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    29. Li, Xibao, 2009. "China's regional innovation capacity in transition: An empirical approach," Research Policy, Elsevier, vol. 38(2), pages 338-357, March.
    30. Crepon, Bruno & Duguet, Emmanuel, 1997. "Estimating the Innovation Function from Patent Numbers: GMM on Count Panel Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(3), pages 243-263, May-June.
    31. Hsu, Po-Hsuan, 2009. "Technological innovations and aggregate risk premiums," Journal of Financial Economics, Elsevier, vol. 94(2), pages 264-279, November.
    32. Zhang, Anming & Zhang, Yimin & Zhao, Ronald, 2003. "A study of the R&D efficiency and productivity of Chinese firms," Journal of Comparative Economics, Elsevier, vol. 31(3), pages 444-464, September.
    33. Banerjee, Abhijit V. & Duflo, Esther, 2005. "Growth Theory through the Lens of Development Economics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 7, pages 473-552, Elsevier.
    34. Miaojie Yu, 2015. "Processing Trade, Tariff Reductions and Firm Productivity: Evidence from Chinese Firms," Economic Journal, Royal Economic Society, vol. 125(585), pages 943-988, June.
    35. Greenwood, Jeremy & Krusell, Per, 2007. "Growth accounting with investment-specific technological progress: A discussion of two approaches," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1300-1310, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Laiqun Jin & Changwei Mo & Bochao Zhang & Bing Yu, 2018. "What Is the Focus of Structural Reform in China?—Comparison of the Factor Misallocation Degree within the Manufacturing Industry with a Unified Model," Sustainability, MDPI, Open Access Journal, vol. 10(11), pages 1-19, November.
    2. Abdol Majid Saadat Nezhad & Tahmoures Sohrabi & Nasrollah Shadnoosh & Abbas Toloie Eshlaghy, 2017. "A New Approach to Challenges of Venture Capital in Financing the Industrial Clusters through Cooperative Models and Venture Funds in Iran," International Journal of Economics and Financial Issues, Econjournals, vol. 7(6), pages 111-119.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Neira, Julian, 2019. "Bankruptcy and cross-country differences in productivity," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 359-381.
    2. Toni M. Whited & Jake Zhao, 2015. "Capital Structure Misallocation," Department of Economics Working Papers 15-05, Stony Brook University, Department of Economics.
    3. Wu, Guiying Laura, 2018. "Capital misallocation in China: Financial frictions or policy distortions?," Journal of Development Economics, Elsevier, vol. 130(C), pages 203-223.
    4. Diego Restuccia & Richard Rogerson, 2017. "The Causes and Costs of Misallocation," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 151-174, Summer.
    5. Hill, Enoch & Perez-Reyna, David, 2017. "Financial development and occupational choice," Journal of Macroeconomics, Elsevier, vol. 54(PB), pages 393-409.
    6. Diego Restuccia & Richard Rogerson, 2013. "Misallocation and productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 1-10, January.
    7. Burak R. Uras & Ping Wang, 2017. "Production Flexibility, Misallocation and Total Factor Productivity," NBER Working Papers 23970, National Bureau of Economic Research, Inc.
    8. Luis Garicano & Claire Lelarge & John Van Reenen, 2016. "Firm Size Distortions and the Productivity Distribution: Evidence from France," American Economic Review, American Economic Association, vol. 106(11), pages 3439-3479, November.
    9. In Hwan Jo & Tatsuro Senga, 2019. "Aggregate Consequences of Credit Subsidy Policies: Firm Dynamics and Misallocation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 68-93, April.
    10. Ranasinghe, Ashantha, 2017. "Property rights, extortion and the misallocation of talent," European Economic Review, Elsevier, vol. 98(C), pages 86-110.
    11. Granda, Catalina & Hamann, Franz & Tamayo, Cesar E., 2019. "Credit and saving constraints in general equilibrium: A quantitative exploration," Journal of Development Economics, Elsevier, vol. 140(C), pages 302-319.
    12. T. Libert, 2017. "Misallocation Before, During and After the Great Recession," Working papers 658, Banque de France.
    13. Ek, Chanbora & Wu, Guiying Laura, 2018. "Investment-cash flow sensitivities and capital misallocation," Journal of Development Economics, Elsevier, vol. 133(C), pages 220-230.
    14. David Rezza Baqaee & Emmanuel Farhi, 2020. "Productivity and Misallocation in General Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 135(1), pages 105-163.
    15. Sampreet Singh Goraya, 2019. "How does Caste Affect Entrepreneurship? Birth vs Worth," Working Papers 1104, Barcelona Graduate School of Economics.
    16. Jones, C.I., 2016. "The Facts of Economic Growth," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 3-69, Elsevier.
    17. Wang, Ren & Hou, Jie & He, Xiaobei & Song, Hui, 2017. "Borrowing constraint, heterogeneous production sectors and policy implications: The case of China," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 568-581.
    18. Simone Lenzu & Francesco Manaresi, 2019. "Sources and implications of resource misallocation: new evidence from firm-level marginal products and user costs," Questioni di Economia e Finanza (Occasional Papers) 485, Bank of Italy, Economic Research and International Relations Area.
    19. Aghion, Philippe & Bergeaud, Antonin & Van Reenen, John, 2021. "The Impact of Regulation on Innovation," IZA Discussion Papers 14082, Institute of Labor Economics (IZA).
    20. Dai, Xiaoyong & Cheng, Liwei, 2019. "Aggregate productivity losses from factor misallocation across Chinese manufacturing firms," Economic Systems, Elsevier, vol. 43(1), pages 30-41.

    More about this item

    Keywords

    Resource misallocation; Innovation efficiency; Financial market; Infrastructure investment; Preferential treatment;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:77998. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.