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From “Made in China” to “Innovated in China”: Necessity, Prospect, and Challenges †

From “Made in China” to “Innovated in China”: Necessity, Prospect, and Challenges † Abstract After more than three decades of high growth based on its low-wage advantage and relatively favorable demographics—in combination with market-oriented reforms and openness to the world economy—China is at a crossroads with a much higher wage and a shrinking work force. Future growth will depend, by necessity, more on the generation of increased productivity, and domestic innovation will play an important part in this. In this paper, we assess the likelihood that China can make the necessary transition. Using data on expenditure on research and development, and patent applications, receipts, and citations, we show that the Chinese economy has become increasingly innovative. We will argue that rising wages and expanding markets are among the important drivers of China's growth in innovation. On the other hand, we find evidence of resource misallocation in the innovation area: while state-owned firms receive more subsidies, private firms exhibit more innovation results. Innovation can presumably progress even faster if resource misallocation can be tackled. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Perspectives American Economic Association

From “Made in China” to “Innovated in China”: Necessity, Prospect, and Challenges †

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Publisher
American Economic Association
Copyright
Copyright © 2017 by the American Economic Association
Subject
Symposia
ISSN
0895-3309
DOI
10.1257/jep.31.1.49
Publisher site
See Article on Publisher Site

Abstract

Abstract After more than three decades of high growth based on its low-wage advantage and relatively favorable demographics—in combination with market-oriented reforms and openness to the world economy—China is at a crossroads with a much higher wage and a shrinking work force. Future growth will depend, by necessity, more on the generation of increased productivity, and domestic innovation will play an important part in this. In this paper, we assess the likelihood that China can make the necessary transition. Using data on expenditure on research and development, and patent applications, receipts, and citations, we show that the Chinese economy has become increasingly innovative. We will argue that rising wages and expanding markets are among the important drivers of China's growth in innovation. On the other hand, we find evidence of resource misallocation in the innovation area: while state-owned firms receive more subsidies, private firms exhibit more innovation results. Innovation can presumably progress even faster if resource misallocation can be tackled.

Journal

Journal of Economic Perspectives – American Economic Association

Published: Feb 1, 2017

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