An Econometric Analysis On China's R&D Investment And Economic Growth

China has caught the world's attention by the remarkably increasing economy since the reform and opening-up; however, such simple investment-driven economic growth relies largely on the extensive model which causes a large number of resource consumption. Simultaneously, more and more serious problems, such as resource scarcity, energy shortage, environmental pollution, will have a direct impact on the future of sustainable, coordinated and long-termed development of China's economy. Especially in the current international financial crisis, the priority is how to solve these problems existed and change to the intensive model of economic growth. Science and technology are the primary productive forces, so the improvement of our economic efficiency becomes a more urgent task and this will determine the direction of China's future economy, also our comprehensive national strength and status in the world economy.Innovation is the engine of economic growth, according to the Endogenous Growth Theory. R&D activities are necessary for innovation; therefore, what we need is to increase R&D investment, scientifically promote technological innovation and the accumulation of knowledge, and realize increasing marginal returns through knowledge spillover and diffusion and these measures are important to change to the intensive model of economic growth, deal with the current financial crisis and achieve sustainable economic growth.As China carries out the public statistical work of R&D funding comparatively late, we do not have enough relevant statistical data and also no uniform standard can be applied for R&D index, which reflects the impact of price fluctuations on R&D funding. This paper, on the basis of previous studies, makes relevant research on national and provincial R&D stock and related indices, also capital stock data. With this research and the theory of economic growth and technological innovation, by applying econometric method as the research tool, through the combination of qualitative analysis and quantitative research, this paper tends to make a study on the issues of China's science and technology funding and economic growth.Beginning with the relationship between R&D activities and economic growth in the past 30 years since the reform and opening-up, this paper deeply analyzes the problems existed in our R&D investment. From the perspective of the sources of R&D funding, this paper studies the relationship between government R&D investment and corporate R&D investment and their impacts on our economic development; furthermore, in this analysis, detailed research has been made on the problems existed, such as the use of main body, R&D type, hoping to improve the efficient utilization of R&D funding by econometrically analyzing the proportional change of government and corporate R&D spending and its impact on scientific and technological investment. In this paper, to address the issue of regional disparities in China's R&D investment, in accordance with internationally accepted R&D input indicators-R&D intensity, our provinces, municipalities and autonomous regions are divided into three different regions of R&D input, high, medium and low. Then based on this, Panel Data Model is used to study the impact of China's R&D investment on the economic development in different regions. This paper also, by utilizing grey incidences system model, makes a study on the relationship between industry structure and R&D input in different regions. Finally this paper makes a detailed sub-median analysis of the impact of various factors in different periods on China's R&D investment, aiming to provide policy recommendations for China's scientific and technological input to increase investment and improve the efficiency of funding.Major conclusions of this paper:1. In the past 30 years since the reform and opening up, investment in R&D funding has lagged and positive role in promoting our economy, but comparing the three factors that affect the economy, the labor contributes the greatest, followed by capital, and finally investment in R & D funding. The impact of R&D stock and R&D flows on economic growth is consistent, but the stock contributes more than the flows.2. Two main sources of investments in R&D funding in China:government investment and corporation investment. Government investment plays a positive and long termed role on our industrial enterprises and promotes their profitability and capability to a new level; corporation R&D investment, in the short term, can not be profitable. Government R&D investment and corporation R&D investment has a strong complementary effect, no substitution existed.3. There are significant differences in R&D investments in different provinces, municipalities and autonomous regions and these differences tend to expand. Based on the classification of R&D intensity in different provinces, municipalities and autonomous regions, this paper studies the role of various production factors on economic growth in regions of different R&D investments, which shows that, whether measured by R&D stock, or by R&D flows, only unit R&D input in regions of higher investment in R&D funding functions significantly on the flexibility of per capita output and R&D stock contributes more than R&D flows to economic growth. Only when R&D investment reaches a certain scale can it play a relevant role on economic growth.4. The relationship between industrial structure and R&D intensity in different regions, researched by using the model about degree of grey incidence in this paper, proves that high-tech industry has the greatest impact on R&D intensity while the first industry has the minimum. Also, regional R&D intensity is always associated with the region's industrial structure and industrial structure differs greatly in needs of R&D investment. This is one of the primary reasons that lead to different R&D intensity in various provinces.5. By using time-varying parameter model and quantile regression model this paper makes an in-depth analysis of factors that affect China's R&D investment. The analysis shows that among three major factors affecting R&D investment, industrial structure has the greatest influence, followed by government efforts in scientific and technological input, and finally the level of economic development. Sustained economic growth is an important source of sustained growth of China's R&D funding.The principal innovation of this paper:1. R&D investment is the accumulation of knowledge and its effect on the economy shall be a stock of capital, but input in R&D funding of flow data is always used in most of the researches about R&D funding; furthermore, R&D index used in the elimination of the impact of price changes on R&D funding varies greatly. So this paper, according to the internal composition of the raising of R&D funding, carries out a detailed calculation about the national and regional R&D index and R&D stock.2. In the course of examining the relationship among our government R&D investment, corporate R&D Investment and economic growth, this paper tends to use time-varying parameter model to analyze the dynamic impact of changes of public R&D expenditure of China's universities and research institutions and corporate R&D expenditure, thus to provide a basis for the formulation of investment policy for scientific and technological funding.3. Almost in all the researches about regional differences of R&D funding, regions, based on "China Statistical Yearbook", are divided into northeastern, eastern, central and western regions, which has great irrationality; therefore, this paper uses quantile methods to reclassify the regions of R&D input, based on R&D intensity-which currently is the key indicator to measure R&D input and innovation capability of a country and region. On this basis, this paper analyzes the regional differences of our R&D investment and their relationship with economic development.4. There is great disparity in R&D funding across the country. In this paper, grey incidence model is used to make a research on the relationship between the significant disparity and local industrial structure and finally this paper comes to the conclusion; to some extent, the industrial structure determines the level of R&D funding.5. Many factors affect our R&D investments. In this paper, the use of stepwise least squares regression helps to determine the three major factors which have the most significant impact on R&D investment and then the method of least squares is applied to study the static effects of various factors on R&D investment. Based on this, this paper uses time-varying parameter model to make a detailed study of the changes of factors over time and their dynamic impact on the R&D funding. At the same time, quantile regression model is used to study various factors of different sub-sites and the dynamic changes of their impact on R&D investment.After studying the above-mentioned relationship between our R&D input and economic growth, this paper provides relevant policy proposals, hoping that on the one hand can improve our R&D funding for investment, but on the other hand improve our R&D funding for the use of quality, then give full play to scientific and technological progress in our economic growth and better serve our economy for the promotion of coordinated and stable development.