A Study Of Dynamic Externalities, Innovation Competition And Cross-Country Growth Differences

China’s economy growth and its international competitiveness in the future will depend on its innovation ability. Knowledge externalities have an important role in innovation, and China should take advantage of "giant’s shoulder effect" by which promoting innovation. But there are some constraints which strangled China’s innovation development. We investigate the influences of knowledge externalities to the competitive relation of innovators and the innovative performance from the interaction of knowledge spillover and innovation entrance, competition reflexivity, technology capacity formation, cooperative innovation incentive. This paper analyzed the innovation mechanism and explained the cross-borderdifference of the growth of innovation.The first section suggested one develop mechanism by improving the dynamic effects of knowledge spillover, decreasing the threshold of innovation entry, increasing the innovation rate of new enterprise, and forming the new sources of TFP growth. The paper constructs a function of new enterprise entry, and analyses the influence of one country’s knowledge externalities to innovation entry, and to the innovation incentive of incumbent enterprises. The paper shows that knowledge externalities decrease the barriers to entry, and improve the rates of innovation entry on competing conditions. By competitive effect, it can decrease the innovation rates of incumbent enterprises. The country’s growth rate may improve. On the noncompeting conditions, also increasing market and aboundant human capital, knowledge externalities do not decrease incumbent enterprises’innovation rate. When the growth rate of new knowledge exceeds the dissipation rate of knowledge diffusion, the entry cost will be continued decreasing. The country’s growth rate will be improved, and there is a virtuous cycle mechanism of Innovation driven development. The paper analyses the innovation growth differences of65countries and areas between1996and2011. The results show that there are important role of knowledge externalities to development countries TFP growth. Because developed countries’ knowledge stock and new increased knowledge quantity are more than that of developing countries, and the influence of knowledge externalities to developed countries is bigger than to developing countries. This can explain the growth differences between developed countries and developing countries.The second section suggests one development mechanism by improving the absorption capacity of latecomers, increasing the degree of completion reflexbilities, and forming a vigour innovation market. Based on latecomers’advantages, the paper constructs an innovation function likely’paralleling system’for latecomers. The paper endogenizes the formation of spillover absorption capacity into enterprises’ innovation decisions, and analyses the influences of spillover absorption capacity to innovation capacity. The research finds that the increasing of latecomers’spillover absorption capacity incentive leaders’R&D efforts for getting rid of competitive threaten, and incentive latecomers’R&D efforts. On the conditions (adequate market incentive), latecomers’spillover absorption capacity are complement R&D efforts. By promoting the interaction between leaders and latecomers, one country can built a vigor innovation market. The empirical analysis of71countries and areas show that there are higher innovation performance, such as TFP growth, new enterprise entry, new business brand applications, when the countries have more stronger spillover absorption capacity, the united promoting effects of FDI spillovers and absorption capacity to TFP are more stronger in developed countries than developing countries. The paper put some suggestions to improve the depth and width of spillover absorption capacity.The third section suggest one development by taking advantage of the chance which is R&D incentive influencing by spillovers shocks, speeding the formation of latecomer’s technology capacity (knowledge base, key technology, learning capacity), and realizing the R&D efficient catch-up. The paper studies the formation of latecomer’s technology capacity which is a key variable to R&D efficiency and competitive catching-up. The paper finds the effects of spillover shocks have two parts:one is substitute effects and complement effects in current period competition. In the shorter run, this substitute effects may strong. The other is effects of shocks to the formation of technology capacity. The spillover shocks can improve the margin revenue of R&D efforts, which is useful to the formation of technology capacity. And it can increase the probability of catching-up. The paper also points that the dependency of leaders and latecomers can increase the uncertainty of catching-up. When there are scale effects of technology capacity in R&D efficiencies, the catching-up is difficult. We analyses30semiconductor corporations’catching-up in1990-2012. The results demonstrate our inferences. The paper also discusses the incentive factors and restriction factors to the catching-up of China’s semiconductor.The last section suggests one develop mechanism by promoting the share degree of knowledge among members, enlarging the competitiveness to other competitors, increasing the supplement effects of members, promoting cooperative innovations. We construct a non-homogeneous product competition model. The paper finds that by competition substitution, cooperative enterprise can improve outward competitive capacity, and they have higher market share and R&D density. There is also competitive effect among collaboration members. By technology sharing, one enterprise increasing R&D density can improve others’ competition capacity, and it decrease themselves revenue by decreasing price. When the counteract effects is under sufficiency, there is incentive to increase R&D density. The paper compares the innovation performance of technology sharing, R&D consortium and R&D joint venture. The paper finds that the R&D density of R&D consortium and R&D joint venture is higher than the technology sharing; the reason is that the formers have higher complement effects than the technology sharing.