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Demand forces of technical change evidence from the Chinese manufacturing industry

Andreas Beerli, Franziska J. Weiss, Fabrizio Zilibotti and Josef Zweimüller

China Economic Review, 2020, vol. 60, issue C

Abstract: This paper investigates the effect of domestic market size on innovation activities across different durable good industries in the Chinese manufacturing sector. We address the endogeneity of market size by an IV strategy, based on a measure of potential market size, which is driven only by changes in the Chinese income distribution. This measure is exogenous to changes in prices and qualities of durable goods and is a valid instrument for expected future market size. Our results indicate that an increase in market size by one percent leads to an increase in firm-specific total factor productivity by 0.46% and an increase in labor productivity by 0.50%. These findings are robust to controlling for export behavior of firms and supply side drivers of R&D.

Keywords: China; Demand-induced innovation; Directed technical change; Durable goods; Economic growth; Engel curves; Market size; Middle class; Non-homothetic preferences (search for similar items in EconPapers)
JEL-codes: D31 L11 L68 O31 O33 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Demand forces of technical change: evidence from the Chinese manufacturing industry (2018) Downloads
Working Paper: Demand Forces of Technical Change Evidence from the Chinese Manufacturing Industry (2013) Downloads
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DOI: 10.1016/j.chieco.2018.03.003

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