Innovation Driving Factors And China's Economic Growth

Innovation has become the theme of current development in China.Since Schumpeter’s groundbreaking theory of innovation,the study of innovation has been ongoing,but we still know little about the nature of innovation.In order to clarify the relationship between innovation and China’s economic growth,this paper first discusses the major theories in economics on the relationship between economic growth and innovation,from Marx and Schumpeter to neoclassical economics,endogenous growth theory,and evolution Economics.The vast majority of scholars agree that innovation is the key factor of economic growth.According to these theories,this paper analyzes the current situation of China’s economic growth in depth and concludes that to achieve sustained economic growth,China must accelerate the pace of becoming an innovative economy.In order to understand the general situation of innovation in China at present,this article argues that it is more appropriate to adopt the method of total factor productivity.In the calculation of total factor productivity,The method of DEA-Malmquist does not require to preset the production function,which can better describe China’s current economic stage.This method is wildly used by China’s scholars,but most of them use Fare’s decomposition method,which assumes that technological progress is constant returns to scale,which is inconsistent with the economic reality.Therefore,this paper uses Ray and Desli’s decomposition method to recalculate the total factor productivity,which takes into account of the change of returns to scales.The calculation of total factor productivity shows that,after entering the 21st century,the contribution of TFP growth to the economic growth is much less than that in the 1980s and 1990s,especially after the financial crisis in 2008,which shows that the economy is getting more and more factor-driven and inventment-driven,but this situation has started to improve since 2013.Further more,this paper discusses in detail various factors that drive innovation,including technical factors,institutional factors,resource factors,cultural factors and entrepreneurship.Among all these factors,entrepreneurship is the core element of the innovation process.Innovation is not a technical concept,but an economic concept.Thus it is a revolutionary change in the combination of factors from this point of view.Scientific discoveries,technological inventions,institution and cultue are just the necessary inputs for innovation,which will not turn into innovation alone.Entrepreneurs are the key players that bring these factors together and finally make innovation into life.This paper argues that countries or regions where entrepreneurship are more active have more frequent innovations and a higher probability of turning technological inputs into market-oriented innovations.In order to verify the important role of entrepreneurship,this paper use panel smooth transition model.The reason for adopting this model is that China’s economic development is still in a high-speed stage.The impact of various factors on innovation can not be static but there should be a threshold effect.However,the general threshold effect allows only the core explanatory variables of the model to undergo structural changes at certain thresholds.This article argues that the change of coefficients of core explanatory variables may not change suddenly in some values,but change smoothly with the threshold variables.Therefore,panel smooth transition model is in line with the research requirements.The main conclusions are as follows:Entrepreneurship has a significant impact on improving innovation level of the society,for entrepreneurs can better discover market needs and reassemble factors,make full use of technological inventions.Therefore,when a society is more active in entrepreneurship,the probability of turning scientific and technological knowledge into innovation is higher.Also the article finds that China’ s infrastructure level needs to be further improved.Although infrastructures such as highways in our country has greatly developed,it is still not perfect.We need to strengthen various types of infrastructures such as schools,hospitals,drainage and so on to better stimulate innovation.Human resources have a positive effect on technological progress but failed to give full play in promoting innovation in the past period.It may due to human capital’s growth mainly concentrated in the middle and low-end talents during the period of 1998-2015.Agglomeration of innovation is an important factor in enhancing the innovation capability.Areas with relatively concentrated innovation resources have faster technological progress.Also when the institution of a society changes rapidly,technological progress tends to be faster.However,when the institution is relatively mature,technological progress tends to be steady,which is in line with the experience of developed countries.In addition,the stronger the government’s intervention in the economy,the individuals and enterprises in society will be less likely participate into the progress of innovation,which will affect the rate of technological progress.