Innovation Subsidy,Endogenous Growth And Industrial Structural Transformation

The transformation of industrial structure is an inevitable phenomenon when the economy develops to a certain stage.With the development of economy,most countries have experienced the gradual shrinkage of agriculture and expansion of nonagricultural industries,especially the services industry,such as the United States,Britain,Japan,India,China,etc.Many scholars pay attention to this process of largescale redistribution of labor and capital between industries or sectors,and put forward their own explanations on the causes and influencing factors of this process.Among the variety of the factors that affect the structural transformation,this paper mainly focuses on innovation and fiscal policy.From a perspective of theory,since innovation is an important driving force of economic growth,and growth can promote the industrial structural change by increasing individual income and promoting capital deepening,innovation can influence the structural transformation.As for fiscal policy,it can not only indirectly affect the economic growth,but also have an effect on the distributions of production factors and income directly,so it can also influence the transformation of industrial structure.From a perspective of China’s economic reality,the economy has entered a new normal,with the economic structure constantly optimized and upgraded,and the growth drivers shifting from production factors and investment to innovation.The 14th Five-Year Plan also calls for innovation,increasing investment in research and development,and coordinated industrial development.To sum up,it is of great significance to study the impact of innovation and fiscal policy on industrial structural transformation from both theoretical and practical perspectives.Specifically,this paper constructs an endogenous growth model including innovation sector and agriculture,manufacturing and services three final-good sectors,and then introduces the innovation subsidy into the model.Under this framework,this paper studies the impact of this kind of fiscal policy on the economic endogenous growth and industrial structural transformation.This paper also makes an empirical test on the theoretical analysis results by using actual economic data of China.As for the choice of fiscal policy,since the innovation subsidy is closely related to innovation process,this paper chooses this type of fiscal policy for research.In the theoretical analysis part,firstly,a benchmark model is constructed.The model assumes that the economy is composed of the producer side,the demand side,and the government.The producer side is composed of the final-good sector,the intermediate-good sector,and the R＆D（innovation）sector.The R＆D department produces patents,and the creation of new patents increases the types of intermediate goods produced by the intermediate-good sector.The final-good sector includes three subsectors of agriculture,manufacturing and services.It uses basic labor,human capital and all types of intermediate goods to produce three kinds of final goods,the agricultural goods,the manufacturing goods and the services goods.The demand side consists of homogenous consumers,who provide basic labor and human capital,lease physical capital,and consume final goods.The government provides the intermediategood firms a constant rate of innovation subsidy according to the firms’ revenue,and finances the subsidy by imposing a lump-sum tax on consumers.The main conclusions of the benchmark model analysis are as follows:（1）When a certain knife-edge condition is met,the generalized balanced growth path（GBGP）exists,and on GBGP,the agriculture subsector will shrink overtime,while the manufacturing and the services industries will continue to expand with a positive economic growth rate.And as the time tends to infinity,the shares of basic labor employment and output value of the three subsectors will tend to be stable.（2）On GBGP,the endogenous economic growth rate will rise with the increase of subsidy rate.（3）The increasing subsidy rate will speed up the industrial structural transformation on the one hand,and on the other hand,optimize the gradual result of structural transformation,that is,the basic labor share of agriculture further decreases,and of manufacturing and service industries further increase.Secondly,this paper extends the benchmark model from two aspects of introducing heterogenous agents and capital income tax,and draws the following conclusions.In the model of introducing heterogeneous agents,due to the difference in the ability level of agents,they will choose between workers and innovators according to their own ability levels.At this point,the ability level has a threshold effect on the agents’ job choices.Under optimal conditions,only the agents with the ability level higher than the threshold value will engage in innovative work,while the others will engage in final goods production.In this case,the share of innovators in the economy is lower than that in the benchmark model,but the economic growth rate is higher.The increase of subsidy rate will still accelerate the industrial structural transformation,but the gradual transformation results will be worse.Even so,under the same subsidy rate,the gradual transformation results of this model are still better than those of benchmark model.In the model of introducing capital income tax,the increasing capital income tax will also promote industrial structural transformation from two aspects on the one hand,and on the other hand,strengthen the positive impact of subsidy rate on structural transformation,making the industrial structural transformation faster and the gradual structural transformation more thorough.However,the introduction of capital income tax is accompanied by the distortion of production factors distribution and the decline of social welfare.In the empirical research part,this paper firstly constructs a basic regression equation,and studies the impact of government innovation subsidy on industrial structural transformation by using the fixed effect model and random effect model based on the inter-provincial panel data from 1997 to 2019 in China.In terms of data selection,this paper uses the change of non-agricultural industrial output value measuring the industrial structural change,the dependent variable,and uses the proportion of government funds in the funds raised by scientific and technological activities and the proportion of government funds in the internal expenditure of R＆D measuring the government subsidy rate,the independent variable.Secondly,according to the theoretical analysis results,this paper carries on a mediation test to the conclusion that the government subsidy rate accelerates the industrial structural transformation by promoting the economic growth rate.Thirdly,this paper divided the total sample into eastern,central and western regions for sample regression.Finally,this paper uses the change of non-agricultural employment ratio and the ratio of fiscal science and technology expenditure to GDP measuring the explained variable and the explanatory variable,respectively,to test the robustness of the basic regression results from two perspectives.The main conclusions are as follows:（1）The estimation results of the basic regression equation show that the government subsidy rate has a significant positive correlation with the change of industrial structure,that is,the increase of the subsidy rate has a positive impact on the acceleration of industrial structural transformation.（2）The results of the mediation effect test show that at least part of the acceleration effect shown in the basic regression results is realized by promoting the economic growth,which provides data verification for the theoretical analysis results.（3）The sub-sample regression results show that the positive acceleration effect of government subsidy rate on industrial structural change is most significant in the western region,but not in the eastern and central regions.The reason for this result may be that the government subsidy rate in the eastern and central regions is relatively low and hence has limited influence on the one hand,and on the other hand,the proportion of non-agricultural industrial output value in eastern China is relatively high,and the space for further transformation of industrial structure is limited.（4）The regression results of the two robustness tests show that the positive acceleration effect of innovation subsidies on industrial structural change is relatively robust.In summary,this paper studies the impact of innovation subsidies on endogenous economic growth and industrial structural transformation from both theoretical and empirical perspectives.As far as we know,there is no previous study on the relationship between this kind of fiscal policy and industrial structural transformation.This paper shows that government innovation subsidy has a positive effect on economic growth and industrial structural transformation through theoretical analysis,provides data verification for theoretical results through empirical research,and puts forward policy suggestions according to the research conclusions.This study not only has the theoretical basis of literature,but also relates to China’s economic reality,which has certain research significance in both theoretical and practical aspects.