An Empirical Analysis Of The Relationship Between Creative Destruction And Income Inequality

Innovation is the driving force to lead the economies development and the strategic support for a country to improve the social productive forces and overall national strength.Under the background of more and more fierce competition of the comprehensive national strength for overall national, how to improve independent innovation capability of a country has become a hot research of many experts and scholars. In recent years, Chinese income inequality level has been over the warning line, so this paper will analysis about income inequality on technological innovation ability.I empirically investigate the relationship between income inequality and innovation in a Schumpeterian setup through time series from 1990-2013 and cross-provincial panel data from 2000-2013.For Chinese time series data, variables include patents applications, Theil index, foreign direct investment, and foreign direct investment share of GDP, per million people in higher education enrollment. Statistical description, unit root test, and then build ARDL-ECM model. Testing whether the ARDL model contains a long-run relationship between the independent variable and the regressors by bound test. For cross-province panel data, this paper constructs a dynamic panel data model which contain innovation lag and static panel data model without innovation lag. Using different estimation methods to obtain empirical results. To estimate the relationship between the income inequality and innovation under different levels of innovation, used quantile regression for mixed panel data.Empirical results of the Chinese national time series data and cross-province panel data show that inequality-innovation relationship is inversely U-shaped. That is, when a low level of income inequality has a stimulating effect for innovation, on the other hand, a high level of income inequality has an inhibition effect for innovation. Time series data also shows that there is a long-run negative relationship between innovation and income inequality. Furthermore the large income gap is helpless for innovation development under a low level, on the contrary has a positively effect at higher level of innovation.