Policy-induced distortion, market-oriented correction, and R&D spatial spillover – Empirical evidence from Chinese industry

Abstract

The spatial spillover of R&D activities in transitional economies depends not only on distorted institutional gains caused by government policies, but also, to a large extent, on market-oriented corrections. This paper estimates the effect of policy-induced distortions and market-oriented corrections on R&D spatial spillovers using dynamic panel data from Chinese industry between 2000 and 2019. It is found that policy-induced distortion hinders the diffusion of elements of innovation into efficient R&D spaces and it reduces the spatial correlation between innovation elements. In addition, it does not have a significant effect on the improvement of R&D spatial spillover. Market-oriented correction optimizes the regional spatial distribution of factors involved in innovation and has a significant positive effect on R&D spatial spillover. The potential policy implications of the above conclusions lie in the improvement of the amount of R&D spatial spillover. This also includes the elimination of the fetters of policy-induced distortions and it depends to a great extent on the coordination of the development of regional innovation through the improvement of market-oriented innovation mechanisms.

KEYWORDS:

• Policy-induced distortion
• market-oriented correction
• R&D spatial spillover
• innovation elements

JEL Classifications:

• C51
• I28

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by Western Project of National Social Science Fund of China ‘Research on the Dual Cycle Evolution Mechanism and Path of China’s Manufacturing Industry Transformation and Upgrading’ [grant number 21XJL004].