The Threshold Effect Of Financial Development On Technology Deepening

Since the reform and opening up to the outside, China’s economic development is primarily dependent on the capital. With the rise of composition of capital in the economic development, it is not sustainable by relying on capital investment to promote economic development. If we stay in the capital factor-driven stage in the long-term, we will be unable to continue to increase productivity and expand the internationally competitive industry and economic development will face a severe test and won’t achieve sustainable prosperity. Thus, up to a certain degree of economic growth, industrial structure upgrading process of "capital deepening" is bound to weaken. "Technology deepening" will gradually become the main form and source of economic growth. Because if you have sufficient technical innovation and the correct direction of innovation, economic growth can be unlimited, and the law of industrialization and technological innovation as well as the experience of industrialized countries also show that the only source to support the region’s high growth is technological progress.However, the funding in research and development needs a lot of money in the long-term, the money’ supply-abrupt may lead to insufficient research and development activities may break even halfway. Although internal financing is an important source of funding for R & D investment, innovation may require a lot of money and internal financing may not be able to meet the financial needs of innovation; and innovation needs fairly stable investment, so to obtain external financing to ease the areas and business financial is very important. Therefore, access to external financing resources becomes a key factor affecting the smooth continuous advance. A higher level of financial development and financial system will make the market quickly find good investment projects and provide funding, which can effectively alleviate the problem of investment financing constraints, thereby promoting regional and enterprise technology.Therefore, we use 30 provinces in China and medium-sized enterprises and high-tech industry in the year 2003-2012 as the research object,use a nonlinear panel smooth transition regression model to test the effect of different provinces technical barriers on the process of financial development, test different financial level of development,test whether financial development of different provinces have different effect on absolute and relative technical deepening, and test whether financial development will have non-linear regulation on the relationship between independent research, FDI, OFDI absolute and relative technologies.We hope that this study can come up with policies to provide empirical support for the government. By studying, we obtain the following conclusions:First, when the current level of financial development which is denoted by loans to GDP ratio is not over the relevant threshold value, the financial development have inhibitory effects on technology deepening in our sample provinces;when the financial development is over the threshold, the inhibitory effect of financial development on technology deepening will be deeper,and the higher level of financial development,the larger this inhibitory effect.It shows that financial development of provinces is not beneficial to the level of technological deepening. When the ratio of stock market value to GDP is not over the threshold value, stock market development has a a significant positive effect on technology deepening;When the stock market development is over the threshold value, the stock market development still has significant inhibitory effect on technology deepening and the effect increases with the development of stock market development. It indicates that stock market is conducive to technological deepening, but when it is over a certain extent, it will hinder technological deepening. The study also finds that in different levels of financial development, the effect of independent research and development, FDI and OFDI on technology deepening is different. It shows that financial development will produce different effects on the technical deepening through independent research, FDI and OFDI.Second, when the commercial bank loans is below the threshold value,it will have a significant positive effect on provinces’ industrial technology deepening effect; when commercial bank lending is over the threshold value, it will sill have positive effects on the sample provinces medium-sized enterprises’ technological deepening, but significant changes will not occur with the upgrading of the level of financial development.When the stock market development is lower than the threshold value, it will have significant inhibitory effect on the sample provinces’ technology deepening; when the stock market is over the threshold value, the stock market development will have significant positive effects on the sample provinces’ technology deepening, and this effects increases with the development of stock market.It indicates that the development of commercial banks and the stock market are conducive to the development of enterprises technological deepening, especially the development of the stock market is more conducive to medium-sized companies technology deepening. The study also finds that the development of commercial banks and the stock market has regulatory effects on the relationship between independent research, FDI, OFDI and technology deepening and in different levels of financial development, there are also differences in the role of this regulation.Third, when the commercial bank loans is below the threshold value,it will have a significant positive effect on provinces’ high-tech industrial technology deepening; when commercial banks are over the threshold value,it will sill have significantly positive effects on the sample provinces high-tech enterprises’ technological deepening,but the effect on the absolute technological deepening will decrease and effects on the relative technological deepening will increase with development of commercial banks. However, when the stock market value is below the threshold value, the development of stock market have significant positive effects on the high-tech industries absolute technical deepening, but have significant inhibitory effects on the high-tech relative technical deepening; however, with the development of the stock market, the effects of it on absolute or relative high-tech industries technical deepening do not change obviously. The study also finds that the development of commercial banks and the stock market has regulatory effects on the relationship between independent research, FDI, OFDI and high-tech technology deepening.if you try to promote high-tech industries technical deepening through independent research and development, FDI and OFDI, you must consider the situation of financial development.According to research findings, we can draw the following relevant policy recommendations: ①continuing to promote the development of financial markets. The Government should continue to reinforce the reform of financial markets, enhance marketization of interest rates of commercial banks, improve service and operational efficiency of financial institutions, so as to create a good indirect financing environment; at the same time, the government should also continue to promote the development of capital markets, spares efforts to develop the stock market as the main direct financing market. ② increasing R & D investment, strengthening the "introduction " actively "go out.”Domestic enterprises should continue to improve the R & D investment, improve their R & D capabilities and capabilities to learn new technologies. At the same time, we should expand investment, improve the actual use of foreign capital ratios and limits, improve the access threshold for foreign investment, improve the quality of foreign investment, and improve foreign investment in technology spillovers. At the same time, we should actively encourage enterprises to go out and strengthen direct investment on foreign enterprises, especially in the acquisition of external technology resources and science and efforts for the purpose of foreign direct investment, lay a solid foundation for OFDI, continue to improve OFDI reverse technology’ effects on domestic technology deepening. ③"local conditions", draw targeted economic policy. Government departments should develop different financial development policies according to the specific circumstances of each province’s; at the same time, the introduction of foreign direct investment and promoting of investment on foreign enterprises should be combined with specific financial development policies, encouraging enterprises to enhance R & D capabilities, avoiding the conflict between policies of the introduction of foreign direct investment and policies of financial development, deepening the level of co-promotion techniques.This article also has the following limitations and prospects: ① Because the authoritative OFDI data began in 2003, our sample data period is 2003-2012. Due to the short period of the data, there may be many threshold values which can not be found. We will continue to track this OFDI data, studying more comprehensively and systematically of the relationship between OFDI and regional innovation capability; ②Besides threshold effect based on financial development level,there are other threshold effect that we don’t analyze one by one because of the limit of the paper length.In future studies, we will study threshold effect besides threshold level of financial development,so as to reveal a more realistic and comprehensive threshold effects in the process of Chinese technology deepening.