Empirical Study Of R&D Investment And China’s Economic Growth Based On Panel Data Model

Since the reform and opening up, China’s economic grows continuously. But, the mode of economic development relies on the extensive type mainly, which is not good for economic developing stability and sustained growth. So our government has put forward a plan of "To accelerate the transformation of economic growth mode". R&D investment is an important source of Technology innovation which is an important resource for future economic development, and it can improve the output efficiency through knowledge and technology accumulation. In recent years, there are many studies and many methods about economic growth and R&D investment. Most of them, establishing a Panel Data Model based on the theory of endogenous, then we can sum up the conclusions from estimates of the model.What’s a pity, there are several shortcomings in these existing literatures. For example, establishing the Panel Data Model without choosing the fit methods, which is to test the model form. So that modeling is too casual. What’s more, the conventional test methods need to meet several assumptions. Firstly, it assumes that the error has normal distribution. Secondly, it assumes there does not exist the Time Effect when testing the Individual Effect, and assumes there does not exist the Individual Effect when testing the Time Effect. Thirdly, it assumes that the explanatory variables are not correlated with random effect.However, under the background of the paper, there are many factors affect economic growth, we can’t give all of them in the model, which is not meet the first assumption. The data of the paper show that there are significant difference in R&D expenditure and personnel between thirty cities of China. These differences may come from geographical differences, different regions culture and so on. But these potential factors are correlated with the explanatory variables in the model. Therefore, this paper can’t meet the last assumption. The second one will reduce the robustness, which will certainly affect the test results.In order to solve the problem, we use the method of Wu and Li (2014) to test for Individual and Time Effect in models. This new method will avoid the case of the assumptions in conventional test methods based on Lagrange Multiplier (LM), which can’t meet the realities. We will get a more accurate model and model estimation results, which is good for explaining the realities of economics. First, in order to eliminate the influence of the Time Effect by centering when testing Individual Effect, and in order to eliminate the influence of the Individual Effect by orthogonal transformation when testing Time Effect. Thus avoiding the problem that the mutual interference between Individual and Time Effect. Secondly, the method uses Central Limit Theorem and Law of Large numbers when established statistics, which effectively solve the practical problems that the assumption that the error must be normal distribution. Lastly, the calculation of the statistics of the method is so convenient, and it doesn’t need to meet the assumption that the explanatory variables are not correlated with random effect.The last part of this paper is empirical analysis. This part, establishing Panel Data Model to discuss the correlation of R&D investment and economic development, based on the theory of endogenous and 30 provinces or cities data of China from year 2003 to 2013. In order to find the reason why R&D investment can’t promote economic development rapidly, this paper try to give a study from different types of R&D activities. When establishing Panel Data Models, We use the method of Wu and Li to test for Individual and Time Effect in models. The empirical study results show that there is positively correlated relationship between R&D investment and economic growth, but the correlation is less than capital’s and labor’s which are traditional input factors in economic growth. The empirical study results also show that the output elasticity of basic and applied research is larger than research and development, which maybe the reason why R&D investment can’t promote economic development rapidly.We can give several policy recommendations from the conclusions above. First, in our country, R&D investment can promote economic growth, but now the effect is small, we need increase R&D investment, especially, we should pay more attention to basic research and applied research. Second, we should focus on the cooperation between factories and universities, in order to try our best to increase the economic through R&D investment. Third, to promote regional balance.