Innovation, the Flying Geese Model, IPR Protection, and Sustainable Economic Development in China

Abstract

China has achieved an “economic miracle” with 40 years of continual high-speed growth and the simultaneous realization of global innovation prowess. In this study, a large panel dataset from 1985 to 2017 was used in an effort to explore how innovation (at the enterprise level), the flying geese model (at the global and national level), and intellectual property rights (IPR) protection (at the governmental level) have facilitated China’s sustainable economic development (SED). We employed ridge regression to compensate for the obvious multicollinearity among independent variables. For control purposes, we included multiple variables, namely, population, the labor force, the exchange rate, human capital, and research and development (R&D) expenditures. The results show that all three factors have significant explanatory power for China’s SED. First, either Total domestic patent applications or Total domestic patent grants by Chinese enterprises have overtaken those by their foreign counterparts and become a powerful engine for China’s SED. However, we understand that patent applications as a measure of innovation could overestimate China’s innovation capability more than patent grants. Second, the flying geese model can explain not only China’s SED but also China’s innovation diffusion at the global and national levels. From 1985 to 1992, China’s industrialization and innovation were mainly driven endogenously; from 1993 to 2008, they were simultaneously driven exogenously and endogenously. Since 2009, they have gradually become predominantly endogenously driven. Third, China’s IPR protection has grown increasingly tighter at the governmental level, which has further facilitated China’s SED. About 98.5% (annually) of patent infringement disputes through the administrative protection system could be closed promptly between 2014 and 2017. Additionally, the proportion of infringed patent rights holders from foreign countries has been declining in recent years. The results significantly enrich the extant theories, and the analysis also has several key implications for actions that should be taken to maintain China’s sustainable economic growth; specifically, China should (1) keep its opening-up policy so as to continually expand exports and attract foreign direct investment (FDI); (2) encourage innovation activities from domestic enterprises since they have been the stimulus of China’s SED; (3) improve its IPR protection system, particularly its judicial protection system, so as to form a virtuous circle of innovation in China.