China’s technology transformation: Diffusion and intensification of R&D effort in China’s firms and research institutes

Project Summary This proposal builds on an initial round of NSF-sponsored research that has examined the channels through which research and development resources are contributing to technical change in China. Over the period 1995-2003, China raised its R&D/GDP ratio from 0.6 percent to 1.3 percent. This abrupt increase shares features of the historic trajectories of large OECD countries that rapidly raised their R&D intensities from less than one percent to more than two percent. The central objective of the project is to deepen understanding of the factors that are driving the diffusion and intensification of R&D effort in China’s economy. To investigate these factors, the project extends its empirical base along two dimensions: (i) for China’s 22,000 large and medium-size enterprises, the National Bureau of Statistics has agreed to add the data for 2002-2006 (in addition to the data used previously for 1995-2001), and (ii) the Ministry of Science and Technology has agreed to provide its data base that covers China’s approximately 4,500 research institutes for the years 1995-2003. The latter data have never before been used for systematic economic research. Together these data sets cover nearly three-quarters of China’s total R&D spending. The research is based on the theoretical foundations of the endogenous growth literature, including the motives for deliberate investment in R&D and interactions between firm-level R&D effort and R&D spillovers and international linkages (i.e., trade, foreign direct investment, and foreign technology transfer). The data sets are rich in variables that measure these activities at both the individual firm and research institute level and at various levels of industry and geographic aggregation. Among the research issues that the project will investigate are: (i) how complements to R&D, including firm/institute characteristics (e.g., size, profitability, and ownership), international linkages, and R&D spillovers affect R&D effort and returns (ii) the direct contributions of foreign invested enterprises and research institutes to China’s rising R&D intensity compared with their indirect contributions that operate through international linkages motivating domestic R&D effort, (iii) the factors that determine the form of ownership restructuring of China’s research institutes and the impact of these restructuring outcomes on R&D effort and institute performance, and (iv) the pattern and speed of diffusion of R&D activity from China’s technology intensive centers to lagging areas. A central challenge of this research agenda is to control statistically for issues of endogeneity and selection bias that arise in the analysis of models of R&D, technical change, and ownership restructuring. Access to large panels of microeconomic data that span nine to 12 years will allow for the use of a range of robust panel data estimation methods, including several relatively new techniques that specifically address endogeneity issues in panel data. This work grows out of research that has been supported by the Department of Energy and the National Science Foundation. That research has generated a body of scholarly work that focuses on the relationship between R&D and imported technology, factor bias, ownership reform, and energy consumption. This proposed project would not be possible without the data set up, the research network, and the intellectual capital provided by the initial project. In addition to on-going collaborations with China’s National Bureau of Statistics and researchers from Dartmouth College, the National University of Singapore, and Peking University, the project will be extending its research network to include the National Research Center for Science and Technology Development in China’s Ministry of Science and Technology and the National Entrepreneurship Center and a team of researchers from Tsinghua University.