R&D Investment, Product Quality Upgrading And Economic Growth

China has made remarkable achievements in economic development, and the output has been ranked second in the world. Unfortunately, this development is driven by a large number of factor inputs, especially large capital investment, a large number of unskilled labors, and is at the cost of huge energy consumption and environmental pollution. However, this extensive growth mode is Unsustainable. According to the existing growth theory and practice of China’s economic growth, we need to rethink and re-examine this growth mode. To make China’s economic growth more sustainable, we must change this growth mode.Based on the existing model with an expanding variety and the model of quality ladders, this paper utilizes an adjustment model of quality ladders, and analyses how R&D investment promotes economic growth by the upgrading of product quality. For the profit-maximizing enterprises, R&D investment on the one hand to improve the types of intermediate products, on the other hand, it will also promote the upgrading of the intermediate product quality. And what is different from the literature, this paper assumes the two cases will appear in the production process at the same time.Faced with the pressure of slowdown of economic growth, it is important for a country to sustain economic growth, and this is particularly true in China. Economic growth in China has also been significantly slowed down, as compared to previous years. The reasons why it happens include the impact of the global financial crisis, furthermore, insufficient domestic demand and other factors also have a very important effect. Therefore, to further maintain steady growth, it needs restructuring of economics, transformation of economic growth mode, and promotes further reform of the economic structure, so as to promote sustainable economic growth.The Third Plenary Session of the18th CPC Central Committee proposes to accelerate the transformation of economic development, and to ensure more efficient, equitable and sustainable economic development. Over the past30years, China’s economic growth is mainly depended on traditional growth methods, that is, a lot of capital and labor inputs obtained high growth. In the current situation, an important way of transformation of economic development is to improve the quality of products, so as to enhance the international competitiveness and achieve sustainable growth. First of all, improving the quality of export products is a critical step, because it is important to enhance product quality for all production.According to this idea and relevant theories, based on cross-country data and experience, this paper combines with the reality of China’s economic growth, and analyzes relevant problems. Upgrading the quality of product and ultimately promoting economic growth by R&D investment, this is the focus of this paper. In the progress, R&D investment is the basis, and quality upgrading of product is intermediate step, we hope to obtain high-quality growth and enhance social welfare.With the empirical test, this paper finds:Firstly, the technological progress, which based on the expanding variety of products and improvements of product quality, has a significantly positive effect on economic growth. To OECD countries, this is true, not only on the economic level, but also on the disaggregated level. But to high-income countries, the role of technological progress on economic growth, which based on the expanding variety of products, is small. On the contrary, the technological progress, which based on the improvements of product quality, has a greater effect on economic growth than the former. To Low-income countries, it is on the contrary.Secondly, R&D investment has a positive effect on quality of export products. To OECD countries, research and development has a significantly effect on quality of export products. But to Non-OECD countries, this effect is not significant. In Non-OECD countries with high income, R&D has a significantly effect on quality of export products, and in Non-OECD countries with low income, it is not the case.Thirdly, physical resource has a positive effect on quality of export products, especially in OECD countries and Non-OECD counties with high income. However, the effect of human resource is different. For the countries with high per capita incomes, human resource, which is indexed by Primary education enrollment rate, has no effect on quality of export products. But for the countries with low per capita incomes, human resource has a significantly positive effect.Fourthly, government intervention has an effect on economic growth. In the progress of economic growth, which is based on the expanding variety of product and improvements of product quality, government intervention has an significantly negative effect. In the total sample and the sample of high-income countries, it is especially true, but in the sample of low-income countries, it has a positive but not significant effect on economic growth. Similarly, to Newly Industrialized Countries, government intervention has the same negative effect on economic growth.