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Demand forces of technical change evidence from the Chinese manufacturing industry


Beerli, Andreas; Weiss, Franziska J; Zilibotti, Fabrizio; Zweimüller, Josef (2018). Demand forces of technical change evidence from the Chinese manufacturing industry. China Economic Review:Epub ahead of print.

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.

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.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Economics and econometrics, finance, China, demand-induced innovation, directed technical change, durable goods,economic growth, Engel curves, market size, middle class, non-homothetic preferences
Language:English
Date:26 March 2018
Deposited On:05 Mar 2019 15:00
Last Modified:30 Jun 2019 07:23
Publisher:Elsevier
ISSN:1043-951X
OA Status:Closed
Free access at:Related URL. An embargo period may apply.
Publisher DOI:https://doi.org/10.1016/j.chieco.2018.03.003
Related URLs:https://www.zora.uzh.ch/id/eprint/147789/

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