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Demand forces of technical change: evidence from the Chinese manufacturing industry

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  • Andreas Beerli
  • Franziska J. Weiss
  • Fabrizio Zilibotti

Abstract

This paper investigates the effect of domestic market size on innovation activities across different durable good industries in the Chinese manufacturing sector. We address the endogeneity of market size by an IV strategy, based on a measure of potential market size, which is driven only by changes in the Chinese income distribution. This measure is exogenous to changes in prices and qualities of durable goods and is a valid instrument for expected future market size. Our results indicate that an increase in market size by one percent leads to an increase in firm-specific total factor productivity by 0.46 percent and an increase in labor productivity by 0:50 percent. These findings are robust to controlling for export behavior of firms and supply side drivers of R&D.

Suggested Citation

  • Andreas Beerli & Franziska J. Weiss & Fabrizio Zilibotti, 2018. "Demand forces of technical change: evidence from the Chinese manufacturing industry," ECON - Working Papers 277, Department of Economics - University of Zurich.
  • Handle: RePEc:zur:econwp:277
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    Cited by:

    1. Esteban Jaimovich, 2021. "Quality growth: from process to product innovation along the path of development," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(2), pages 761-793, March.
    2. zhibo Tan & Xiaobo Zhang, 2016. "Does Female Labor Scarcity Encourage Innovation? Evidence from China’s Gender Imbalance," Working Papers id:11039, eSocialSciences.
    3. Fabrizio Zilibotti, 2017. "Growing and Slowing Down Like China," Journal of the European Economic Association, European Economic Association, vol. 15(5), pages 943-988.

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    More about this item

    Keywords

    China; demand-induced innovation; directed technical change; durable goods; Economic growth; Engel curves; market size; middle class; non-homothetic preferences;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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