The Growth of Chinese R&D and Innovation; Jake Zhao (Peking University)

Abstract

China’s GDP has grown at a tremendous rate over the last 40 years, but its total R&D
expenditure has grown even more. We construct a model of firm dynamics which produces
endogenous increases in R&D and productivity. We then take the model to the data and
find that R&D expenditure as a percentage of GDP should have plateaued in the absence of
government incentives. Also, Chinese firm productivity would have lagged more than 10 years
behind without foreign technology spillovers. Finally, we assess the efficacy of various R&D
policies. Giving greater R&D subsidies to less productive firms is more efficient, while giving
greater subsidies to firms with lower R&D expenditures is not as efficient.

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