Middle Class Share And Firm Innovation

Innovation-driven development strategy is an important move of reform,during which enterprises are undoubtedly an important force.Based on the theory of demand-induced innovation,the residents' income distribution has a far-reaching influence on firm innovation.This paper focuses on the impact of middle class share on firm innovation.The paper uses 2005-2007 micro-data of Urban Household Survey as well as China industrial firm database,and applies Probit and Tobit model to analyze the impact of middle class share on tendency of firm innovation.After controlling the R&D input,the paper applies panel fixed model to analyze the impact of middle class share on the efficiency of firm innovation.At last it makes an empirical test to examine the mechanism basing on the existing theory.The results show that:(1)the middle class share can improve the probability and dynamism of enterprise to engage in R&D behavior.After controlling the R&D input,the middle class share also has a positive effect on the performance of firm innovation.Instrumental variable method is used to solve the endogenous problem,and the conclusion is still valid;(2)heterogeneity analysis is executed by the classification of enterprise ownership type,factor intensity and main product market scope.The middle class share has a more significant effect on the innovation behavior of non-state-owned enterprises and technology-intensive enterprises;(3)the middle class share promotes the innovation of enterprises by promoting the process of consumption.Specifically,the consumption promotion is reflected in two aspects:scale effect and structural effect.Based on the results,this paper argues that measures should been taken to deepen the reform of income distribution system to enlarge the middle class share and promote the income levels of upward mobility.The redistribution process should pay more attention to fair to narrow the income gap.At the same time,more comprehensive social security system should be established to further enhance the contribution of the middle class.