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Frontiers of Economics in China

Front Econ Chin    2008, Vol. 3 Issue (4) : 548-559
Demand-oriented innovation of firms in China: An empirical study
XU Changsheng , WANG Jingjing , WANG Hai
School of Economics, Huazhong University of Science and Technology, Wuhan 430074, China
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This paper analyzes the interrelationship among competition, market size and innovation by using the data from total 37 industries in China within a simultaneous equations model. It finds that: (1) Competition and innovation are mutually-enhanced, and this is the consequence of the long-run Darwinian effect in competitive market; (2) Market size and innovation are also positively correlated, because firms’ innovation is essentially demand-oriented (market-oriented), and innovation impelling technological progress will finally increase market size; (3) Between competition and market size, the effect of competition on market size is ambiguous, while the reverse is significantly positive. The policy implication of this paper is as follows: under the condition that China has especially huge market size and market demand, the industry policy of intensifying competition can stimulate firms’ persistent demand-oriented innovation.

Keywords competition      market size      demand-oriented innovation     
Corresponding Author(s): WANG Hai,   
Issue Date: 05 December 2008
 Cite this article:   
XU Changsheng,WANG Jingjing,WANG Hai. Demand-oriented innovation of firms in China: An empirical study[J]. Front Econ Chin, 2008, 3(4): 548-559.
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XU Changsheng
WANG Jingjing
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