The Influence Of Production-factor Price Distortions On China's Independent Innovation Capability

Schumpeter(1912)first proposed that innovation is the fundamental driving force for economic growth;Aghion,Howitt(1992,1998)constructed a theoretical framework to prove that a fully competitive market environment doesn't lack innovation,which has been empirically proved in developed countries where the rate of technical contribution in the economic growth is high for a long time.But a large number of empirical studies have shown that China's rapid economic growth is relying on ever-increasing production factor inputs and low-cost competitive advantage,rather than relying on the improvement of TFP(Krugman,2001;Liu Ruixiang,2013).In addition,the technological progress of China's economic growth is mainly caused by the import of technology from developed countries rather than our own independent innovation(Zheng Jinghai,Hu Angang,2005).Weak innovation capacity makes us staying the low-end in international industrial chain and lose the control of core technology.Moreover,our development model relying on increasing input of production factor brings huge pressure on resources and the environment,and restricts the improvement of national competitiveness,as well as transcends the "middle income threshold "(Chen Qingtai,2011).Gradual reforms and long-time growth-and-stability-oriented policy of price controls lead to production factor market lagging behind the commodity market,price of production factor has serious distortion(Gao Fan,2008;Zhang Shuguang,Cheng Lian,2010).It is universally acknowledged in standard economic theory that price is the signal of resource scarcity,and price distortion will reduce efficiency of resource allocation.Large number of empirical studies have confirmed that price distortion of China's production factor affects TFP of society,making actual output below potential maximum output(Chen Yongwei,Mr Woo,2011;Hsieh,Klenow,2009).Enterprises are rational actors focusing on maximizing profit.Production factor price distortions stimulate enterprises to intensively use tangible elements,and have no incentive to invest in innovation.Enterprises' scarcity in innovation will inhibit China's innovation power and technological progress as well as upgrading in the international division.If the results of this paper proves that production factor price distortions have significant impacts on China's independent innovation,then we should create more favorable conditions to make prices reflect the real value of the scarcity of production factor,so as to free more innovation potential.Through constructing innovation evaluation index system,This article makes an empirical measurement of China's 30 provinces independent innovation capability index from year 1998 to 2012.In addition,this article calculates capital and labor price twist by building production functions.Last but not least,this paper constructs models to do research on the relationship between independent innovation capability and production factor price distortion through GMM method.Conclusions are as below.First,China's production factor price distortion tends on a declining trend,indicating that the deepening marketing reform reduced production factor price distortion.Second,the distortion of capital and labor prices significantly inhibited the improvement of China's independent innovation capacity,while technology spillover J,infrastructure S,industrial structure G also play positive roles in promoting China's independent innovation capability.Third,in the areas with more per capita income and more developed economy,the effect that capital and labor price distortions inhibit independent innovation are more strong;While,in more developed provinces where finance,technology and production strength are more strong,reducing production factor price distions will release more capacity for indepent innovation potential.