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.