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Financial development and innovation in China: Evidence from the provincial data

Aoife Hanley, Wan-Hsin Liu and Andrea Vaona

No 1673, Kiel Working Papers from Kiel Institute for the World Economy (IfW)

Abstract: This paper investigates the role of regional financial development, in addition to FDI, for regional innovation in China, using a more recent provincial dataset and more sophisticated panel data estimation techniques than previous studies. Two aspects of regional financial system development are considered: its financial depth and government intervention in the financial system. Estimation results show that the financial depth of a region has a significantly positive effect on regional innovation (patenting) performance. This positive effect is found to be higher for minor innovations such as external design patents than for more complicated innovations such as utility model patents and invention patents. Surprisingly, estimation results do not show that government financial system intervention reduces allocative efficiency of resources which would otherwise impede regional innovation performance.

Keywords: Regional financial system; FDI; innovation; patent; regional study; China (search for similar items in EconPapers)
JEL-codes: G20 O30 O53 R10 (search for similar items in EconPapers)
Date: 2011
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