THE IMPACTS OF GOVERNMENT R&D EXPENDITURE ON INNOVATION IN CHINESE PROVINCES: WHAT’S THE ROLE OF CORRUPTION
Keywords:
Research & development, Corruption, Innovation, Panel data
Abstract
We investigate the moderating role of corruption on the effect of government research
and development (R&D) expenditure on enterprise innovation in China, using annual
data from 2002 to 2013 in a panel of 30 provinces. Our findings show that R&D
expenditure does not influence the number of patent applications, but it does influence
the number of patents granted. When considering official corruption, the interaction
term of R&D expenditure and corruption has a statistically significantly positive effect
on the numbers of patent applications and patents granted, with corruption having
significantly positive effects on the ratio of the number of patents granted to the
number of patent applications.
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References
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Amir, R. and Burr, C. (2015). Corruption and Socially Optimal Entry. Journal of Public Economics, 123, 30-41.
Anderson, T. W. and Hsiao, C. (1981). Estimation of Dynamic Models with Error Components. Journal of the American Statistical Association, 76, 598-606.
Anokhin, S. and Schulze, W. (2009). Entrepreneurship, Innovation and Corruption. Journal of Business Venturing, 24, 465-476.
Arellano, M. (2003a). Panel Data Econometrics. Oxford University Press.
Arellano, M. (2003b). Modeling Optimal Instrumental Variables for Dynamic Panel Data Models. Working Paper 0310, Centro de Estudios Monetariosy Financieros, Madrid.
Arellano, M. and Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. The Review of Economic Studies, 58, 277-297.
Arellano, M. and Bover, O. (1995). Another Look at The Instrumental Variable Estimation of Error-components Models. Journal of Econometrics, 68, 29-51.
Argyres, N. and Brain, S. (2004). R&D, Organization Structure and the Development of Corporate Technological Knowledge. Strategic Management Review, 25, 929-958.
Baker, C. I., Peli, E., Knouf, N. and Kanwisher, N. G. (2005). Reorganization of Visual Processing in Macular Degeneration. Journal of Neuroscience, 25, 614-618.
Baltagi, B. H. (2008). Econometric Analysis of Panel Data. Wiley Press.
Barbosa, N., Faria, A. P. and Eiriz, V. (2014). Industry and Firm-specific Factors of Innovation Novelty. Industrial and Corporate Change, 23, 865-902.
Baumol, W. J. (1990). Entrepreneurship: Productive, Unproductive, and Destructive. Journal of Political Economy, 98, 893-921.
Beck, T., Levine, R. and Loayza, N. (2000). Finance and the Sources of Growth. Journal of Financial Economics, 58, 261-300.
De Rosa, D., Gooroochurn, N. and Gorg, H. (2010). Corruption and Productivity:
Firm-level Evidence from the BEEPS Survey. Policy Research Working Paper
Series, 5348, The World Bank.
Desyllas, P. and Hughes, A. (2010). Do High Technology Acquirers Become More
Innovative? Research Policy, 39, 1105-1121.
Dimos, C. and Pugh, G. (2016). The Effectiveness of R&D Subsidies: A Metaregression Analysis of the Evaluation Literature. Research Policy, 45, 797-815.
Dirienzo, C. and Das, J. (2014). Innovation and Role of Corruption and Diversity: A Cross-country Study. International Journal of Cross Cultural Management, 27, 1-22.
Diamond, A. M. (1999). Does Federal Funding ‘Crowd in’ Private Funding of Science. Contemporary Economic Policy, 17, 423-431.
Dong, B. and Torgler, B. (2013) Causes of Corruption: Evidence from China. China Economic Review, 26, 152-169.
Dreher, A. and Gassebner, M. (2013) Greasing the Wheels? The Impact of Regulations and Corruption on Firm Entry. Public Choice, 155, 413-432.
Dushnitsky, G. and Lenox, M. J. (2006). When Does Corporate Venture Capital Investment Create Firm Value? Journal of Business Venturing, 21, 753-772.
Fey M. (2008). Rent-seeking Contests with Incomplete Information. Public Choice, 135, 225-236. Fisman, R. and Svensson, J. (2007). Are Corruption and Taxation Really Harmful to Growth? Firm Level Evidence. Journal of Development Economics, 83, 63-75.
Gao Y. (2011). Government Intervention, Perceived Benefit, and Bribery of Firms in Transitional China. Journal of Business Ethics, 2011, 104, 175-184.
Glaeser, E. and Saks, R. (2006). Corruption in America. Journal of Public Economics, 90, 1053-1072.
Goedhuys, M., Mohnen, P. and Taha, T. (2016). Corruption, Innovation and Firm Growth: Firm-level Evidence from Egypt and Tunisia. Eurasian Business Review, 6, 299-322.
Griliches, Z. (1986). Productivity, Research-and-development, and Basic Research at the Firm Level in the 1970s. American Economic Review, 76, 141-154.
Guisado-González M., González-Blanco J., Coca-Pérez J. L. and Guisado-Tato, M. (2018). Assessing the Relationship between R&D Subsidy, R&D Cooperation and Absorptive Capacity: An Investigation on the Manufacturing Spanish Case. The Journal of Technology Transfer, 43, 1647-1666.
Guo, D., Guo, Y. and Jiang, K. (2016). Government-subsidized R&D and Firm Innovation: Evidence from China. Research Policy, 45, 1129-1144.
Hall, B. H. and Lerner, J. (2010). The Financing of R&D and Innovation. in Hall, B. H. and Rosenberg, N. (ed.), Handbook of the Economics of Innovation, Amsterdam: North Holland, pp. 609-639.
Hirshleifer, D., Low, A. and Teoh, S. H. (2012). Are Overconfident CEOs Better Innovators? The Journal of Finance, 67, 1457-1498.
Hsiao, C. (2003). Analysis of Panel Data. Cambridge University Press.
Kennel, J. S. (2007). Foreign Direct Investment and Local Linkages: An Empirical Investigation. Management International Review, 47, 51-77.
Kokko, A. (1996). Productivity Spillovers from Competition between Local Firms and Foreign Affiliates. Journal of International Development, 8, 517-530.
Krueger, A. (1974). The Political Economy of the Rent-seeking Society. American Economic Review, 64, 291-303.
Le T., Jaffe A. B. (2017). The Impact of R&D Subsidy on Innovation: Evidence from New Zealand Firms. Economics of Innovation and New Technology, 26, 429-452.
Leff, N. H. (1964). Economic Development through Bureaucratic Corruption. The American Behavioral Scientist, 8, 8-14.
Lerner, J. and Wulf, J. (2007). Innovation and Incentives: Evidence From Corporate R&D. Review of Economics and Statistics, 89, 634-644.
Lin, C., Lin, P., Song, F. and Li, C. (2011). Managerial Incentives, CEO Characteristics and Corporate Innovation in China’s Private Sector. Journal of Comparative Economics, 39, 176-190.
Li, H., Meng, L., Wang, Q. and Zhou, L. (2008). Political Connections, Financing and Firm Performance: Evidence from Chinese Private Firms. Journal of Development Economics, 87, 283-299.
Matyas, L. and Sevestre, P. (2008). The Econometrics of Panel Data. Springer.
Murphy, K., Shleifer, A. and Vishny, R. (1991). The Allocation of Talent: Implications for Growth. Quarterly Journal of Economics, 106, 503-530.
Nelson, R. (1971). Simple Economics of Basic Scientific Research. The Journal of Political Economy, 67, 725-736.
Nelson, R. and Winter, S. G. (1982). The Schumpeterian Tradeoff Revisited. The American Economic Review, 72, 114-132.
Paunov, C (2016). Corruption’s Asymmetric Impacts on Firm Innovation. Journal of Development Economics, 118, 216-231.
Qian, Y. and Xu, C. (1998). Innovation and Bureaucracy under Soft and Hard Budget Constraints. The Review of Economic Studies, 65, 151-164.
Rodriguez, P., Siegel, D. S., Hillman, A. and Eden, L. (2006). Three Lenses on the Multinational Enterprise: Politics, Corruption, and Corporate Social Responsibility. International Business Studies, 37, 733-746.
Romer, P. M. (1990). Endogenous Technological Change. The Journal of Political Economy, 98, 71-102.
Rose-Ackerman, S. (2001). Trust, Honesty, and Corruption: Reflection of the Statebuilding Process. European Journal of Sociology, 42, 526-570.
Salomon, R. M. and Shaver, J. M. (2005). Learning by Exporting: New Insights from Examining Firm Innovation. Journal of Economics & Management Strategy, 14, 431-460.
Schumpeter, J. A. (1934). The Theory of Economic Development: An Inquiry into Profits, Capital, Interest and the Business Cycle. Transaction Publishers.
Shleifer, A. and Vishny, R. W. (1994). Politicians and Firms. The Quarterly Journal of Economics, 109, 995-1025.
Shi, Y. and Rao, Y. (2010). China’s Research Culture. Science, 329, 1128-1128.
Svensson, J. (2003). Who Must Pay Bribes and How Much? Evidence from a Cross Section of Firms. Quarterly Journal of Economics, 118, 207-230.
Tanzi, V. (1998). Corruption around the World: Causes, Consequences, Scope and Cure. IMF Staff Papers, 45, 559-594.
Ueda, M. (2004). Banks versus Venture Capita: Project Evaluation, Screening, and Expropriation. The Journal of Finance, 59, 601-621.
Uhlenbruck, K., Rodriguez, P., Doh, J. and Eden, L. (2006). The Impact of Corruption on Entry Strategy: Evidence from Telecommunication Projects in Emerging Economies. Organization Science, 17, 402-414.
Wallsten, S. J. (2000). The Effects of Government-industry R&D Programs on Private R&D: the Case of the Small Business Innovation Research Program. RAND Journal of Economics, 31, 82-100.
Vicente, J., Borrego, C., Forcadell, F. and Galan, J. (2014). Assessing the Effect of Public Subsidies on Firm R&D Investment: A Survey. Journal of Economic Surveys, 28, 36-67.
Waldemar, F. (2012). New Products and Corruption: Evidence from Indian Firms. The Developing Economies, 50, 268-284.
Wang, C. and Kafouros, M. I. (2009). What Factors Determine Innovation Performance in Emerging Economies? Evidence from China. International Business Review, 18, 606-616.
Williams, C. C., Martinez-Perez, A. and Kedir, A. (2016). Does Bribery Have a Negative Impact on Firm Performance? A Firm-level Analysis across 132 Developing Countries. International Journal of Entrepreneurial Behavior & Research, 22, 398-415.
Yeh, Y., Shu, P. and Chiu, S. (2013). Political Connections, Corporate Governance and Preferential Bank Loans. Pacific-Basin Finance Journal, 21, 1079-1101.
Ahlin, C. and Bose, P. (2007). Bribery, Inefficiency and Bureaucratic Delay. Journal of Development Economics, 84, 465-486.
Aidis, R., Estrin, S. and Mickiewicz, T. (2008). Institutions and Entrepreneurship Development in Russia: A Comparative Perspective. Journal of Business Venturing, 23, 656-672.
Aidt, T. and Dutta, J. (2008). Policy Compromises: Corruption and Regulation in a Democracy. Economics and Politics, 20, 335-360.
Alesina, A., Ardagna, S., Nicoletti, G. and Schiantarelli, F. (2005). Regulation and Investment. Journal of the European Economic Association, 3, 791-825.
Amir, R. and Burr, C. (2015). Corruption and Socially Optimal Entry. Journal of Public Economics, 123, 30-41.
Anderson, T. W. and Hsiao, C. (1981). Estimation of Dynamic Models with Error Components. Journal of the American Statistical Association, 76, 598-606.
Anokhin, S. and Schulze, W. (2009). Entrepreneurship, Innovation and Corruption. Journal of Business Venturing, 24, 465-476.
Arellano, M. (2003a). Panel Data Econometrics. Oxford University Press.
Arellano, M. (2003b). Modeling Optimal Instrumental Variables for Dynamic Panel Data Models. Working Paper 0310, Centro de Estudios Monetariosy Financieros, Madrid.
Arellano, M. and Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. The Review of Economic Studies, 58, 277-297.
Arellano, M. and Bover, O. (1995). Another Look at The Instrumental Variable Estimation of Error-components Models. Journal of Econometrics, 68, 29-51.
Argyres, N. and Brain, S. (2004). R&D, Organization Structure and the Development of Corporate Technological Knowledge. Strategic Management Review, 25, 929-958.
Baker, C. I., Peli, E., Knouf, N. and Kanwisher, N. G. (2005). Reorganization of Visual Processing in Macular Degeneration. Journal of Neuroscience, 25, 614-618.
Baltagi, B. H. (2008). Econometric Analysis of Panel Data. Wiley Press.
Barbosa, N., Faria, A. P. and Eiriz, V. (2014). Industry and Firm-specific Factors of Innovation Novelty. Industrial and Corporate Change, 23, 865-902.
Baumol, W. J. (1990). Entrepreneurship: Productive, Unproductive, and Destructive. Journal of Political Economy, 98, 893-921.
Beck, T., Levine, R. and Loayza, N. (2000). Finance and the Sources of Growth. Journal of Financial Economics, 58, 261-300.
De Rosa, D., Gooroochurn, N. and Gorg, H. (2010). Corruption and Productivity:
Firm-level Evidence from the BEEPS Survey. Policy Research Working Paper
Series, 5348, The World Bank.
Desyllas, P. and Hughes, A. (2010). Do High Technology Acquirers Become More
Innovative? Research Policy, 39, 1105-1121.
Dimos, C. and Pugh, G. (2016). The Effectiveness of R&D Subsidies: A Metaregression Analysis of the Evaluation Literature. Research Policy, 45, 797-815.
Dirienzo, C. and Das, J. (2014). Innovation and Role of Corruption and Diversity: A Cross-country Study. International Journal of Cross Cultural Management, 27, 1-22.
Diamond, A. M. (1999). Does Federal Funding ‘Crowd in’ Private Funding of Science. Contemporary Economic Policy, 17, 423-431.
Dong, B. and Torgler, B. (2013) Causes of Corruption: Evidence from China. China Economic Review, 26, 152-169.
Dreher, A. and Gassebner, M. (2013) Greasing the Wheels? The Impact of Regulations and Corruption on Firm Entry. Public Choice, 155, 413-432.
Dushnitsky, G. and Lenox, M. J. (2006). When Does Corporate Venture Capital Investment Create Firm Value? Journal of Business Venturing, 21, 753-772.
Fey M. (2008). Rent-seeking Contests with Incomplete Information. Public Choice, 135, 225-236. Fisman, R. and Svensson, J. (2007). Are Corruption and Taxation Really Harmful to Growth? Firm Level Evidence. Journal of Development Economics, 83, 63-75.
Gao Y. (2011). Government Intervention, Perceived Benefit, and Bribery of Firms in Transitional China. Journal of Business Ethics, 2011, 104, 175-184.
Glaeser, E. and Saks, R. (2006). Corruption in America. Journal of Public Economics, 90, 1053-1072.
Goedhuys, M., Mohnen, P. and Taha, T. (2016). Corruption, Innovation and Firm Growth: Firm-level Evidence from Egypt and Tunisia. Eurasian Business Review, 6, 299-322.
Griliches, Z. (1986). Productivity, Research-and-development, and Basic Research at the Firm Level in the 1970s. American Economic Review, 76, 141-154.
Guisado-González M., González-Blanco J., Coca-Pérez J. L. and Guisado-Tato, M. (2018). Assessing the Relationship between R&D Subsidy, R&D Cooperation and Absorptive Capacity: An Investigation on the Manufacturing Spanish Case. The Journal of Technology Transfer, 43, 1647-1666.
Guo, D., Guo, Y. and Jiang, K. (2016). Government-subsidized R&D and Firm Innovation: Evidence from China. Research Policy, 45, 1129-1144.
Hall, B. H. and Lerner, J. (2010). The Financing of R&D and Innovation. in Hall, B. H. and Rosenberg, N. (ed.), Handbook of the Economics of Innovation, Amsterdam: North Holland, pp. 609-639.
Hirshleifer, D., Low, A. and Teoh, S. H. (2012). Are Overconfident CEOs Better Innovators? The Journal of Finance, 67, 1457-1498.
Hsiao, C. (2003). Analysis of Panel Data. Cambridge University Press.
Kennel, J. S. (2007). Foreign Direct Investment and Local Linkages: An Empirical Investigation. Management International Review, 47, 51-77.
Kokko, A. (1996). Productivity Spillovers from Competition between Local Firms and Foreign Affiliates. Journal of International Development, 8, 517-530.
Krueger, A. (1974). The Political Economy of the Rent-seeking Society. American Economic Review, 64, 291-303.
Le T., Jaffe A. B. (2017). The Impact of R&D Subsidy on Innovation: Evidence from New Zealand Firms. Economics of Innovation and New Technology, 26, 429-452.
Leff, N. H. (1964). Economic Development through Bureaucratic Corruption. The American Behavioral Scientist, 8, 8-14.
Lerner, J. and Wulf, J. (2007). Innovation and Incentives: Evidence From Corporate R&D. Review of Economics and Statistics, 89, 634-644.
Lin, C., Lin, P., Song, F. and Li, C. (2011). Managerial Incentives, CEO Characteristics and Corporate Innovation in China’s Private Sector. Journal of Comparative Economics, 39, 176-190.
Li, H., Meng, L., Wang, Q. and Zhou, L. (2008). Political Connections, Financing and Firm Performance: Evidence from Chinese Private Firms. Journal of Development Economics, 87, 283-299.
Matyas, L. and Sevestre, P. (2008). The Econometrics of Panel Data. Springer.
Murphy, K., Shleifer, A. and Vishny, R. (1991). The Allocation of Talent: Implications for Growth. Quarterly Journal of Economics, 106, 503-530.
Nelson, R. (1971). Simple Economics of Basic Scientific Research. The Journal of Political Economy, 67, 725-736.
Nelson, R. and Winter, S. G. (1982). The Schumpeterian Tradeoff Revisited. The American Economic Review, 72, 114-132.
Paunov, C (2016). Corruption’s Asymmetric Impacts on Firm Innovation. Journal of Development Economics, 118, 216-231.
Qian, Y. and Xu, C. (1998). Innovation and Bureaucracy under Soft and Hard Budget Constraints. The Review of Economic Studies, 65, 151-164.
Rodriguez, P., Siegel, D. S., Hillman, A. and Eden, L. (2006). Three Lenses on the Multinational Enterprise: Politics, Corruption, and Corporate Social Responsibility. International Business Studies, 37, 733-746.
Romer, P. M. (1990). Endogenous Technological Change. The Journal of Political Economy, 98, 71-102.
Rose-Ackerman, S. (2001). Trust, Honesty, and Corruption: Reflection of the Statebuilding Process. European Journal of Sociology, 42, 526-570.
Salomon, R. M. and Shaver, J. M. (2005). Learning by Exporting: New Insights from Examining Firm Innovation. Journal of Economics & Management Strategy, 14, 431-460.
Schumpeter, J. A. (1934). The Theory of Economic Development: An Inquiry into Profits, Capital, Interest and the Business Cycle. Transaction Publishers.
Shleifer, A. and Vishny, R. W. (1994). Politicians and Firms. The Quarterly Journal of Economics, 109, 995-1025.
Shi, Y. and Rao, Y. (2010). China’s Research Culture. Science, 329, 1128-1128.
Svensson, J. (2003). Who Must Pay Bribes and How Much? Evidence from a Cross Section of Firms. Quarterly Journal of Economics, 118, 207-230.
Tanzi, V. (1998). Corruption around the World: Causes, Consequences, Scope and Cure. IMF Staff Papers, 45, 559-594.
Ueda, M. (2004). Banks versus Venture Capita: Project Evaluation, Screening, and Expropriation. The Journal of Finance, 59, 601-621.
Uhlenbruck, K., Rodriguez, P., Doh, J. and Eden, L. (2006). The Impact of Corruption on Entry Strategy: Evidence from Telecommunication Projects in Emerging Economies. Organization Science, 17, 402-414.
Wallsten, S. J. (2000). The Effects of Government-industry R&D Programs on Private R&D: the Case of the Small Business Innovation Research Program. RAND Journal of Economics, 31, 82-100.
Vicente, J., Borrego, C., Forcadell, F. and Galan, J. (2014). Assessing the Effect of Public Subsidies on Firm R&D Investment: A Survey. Journal of Economic Surveys, 28, 36-67.
Waldemar, F. (2012). New Products and Corruption: Evidence from Indian Firms. The Developing Economies, 50, 268-284.
Wang, C. and Kafouros, M. I. (2009). What Factors Determine Innovation Performance in Emerging Economies? Evidence from China. International Business Review, 18, 606-616.
Williams, C. C., Martinez-Perez, A. and Kedir, A. (2016). Does Bribery Have a Negative Impact on Firm Performance? A Firm-level Analysis across 132 Developing Countries. International Journal of Entrepreneurial Behavior & Research, 22, 398-415.
Yeh, Y., Shu, P. and Chiu, S. (2013). Political Connections, Corporate Governance and Preferential Bank Loans. Pacific-Basin Finance Journal, 21, 1079-1101.
Published
2019-02-28
How to Cite
Zhou, X.-B., Wei, W., Jang, C.-L., & Chang, C.-P. (2019). THE IMPACTS OF GOVERNMENT R&D EXPENDITURE ON INNOVATION IN CHINESE PROVINCES: WHAT’S THE ROLE OF CORRUPTION. Buletin Ekonomi Moneter Dan Perbankan, 21(3), 409-430. https://doi.org/10.21098/bemp.v21i3.977
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Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
