Creativity and destructiveness of market competition and technological upgrading

JIAN Ze1,2 TAN Liping3 LYU Daguo1 FU Tong1

(1.Institute of Industrial Economics, Jiangxi University of Finance and Economics, Nanchang , China 330013)
(2.Center for Regulation, Jiangxi University of Finance and Economics)
(3.Library of Jiangxi University of Finance and Economics, Nanchang , China 330013)

【Abstract】This paper investigates the effects of competition on technical progress in light of Marx and Schumpeter. Taking the changes in competitive environment as a natural experiment induced by the removal of non-tariff barriers after China’ access to WTO, we obtain the following results. Competition forces enterprises to increase R&D investments at both extensive and intensive margins. R&D investments generate product and process innovation, thereby leading to the growth of enterprise profits. Market selection mechanism, based on innovative profits, cuts down the market share of enterprises with less innovation, or drives them out of market. These results indicate that competition has two sides. On the one hand, competition has an innovative side, which facilitates micro-level upgrading of technology. On the other hand, competition has an destructive side, which facilitates macro-level upgrading of technology through the reallocation of production. Therefore, competition policy should be the primary policy tool for the transformation of driving force of economic growth in Chinese new normal.

【Keywords】 market competition; creativity ; destructiveness; R&D investment; technological progress;


【Funds】 Regional Project of National Natural Science Foundation of China (71563013) Project of Humanities and Social Sciences Plan Foundation of Ministry of Education (13YJA790036)

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    [1]. ① Regarding the removal of non-traffic barriers, refer to Attachment 3: Non-Tariff Measures Subject to Phased Elimination under Protocol on the Accession of the People’s Republic of China. Special notes are required for the fact that the phased elimination of non-tariff measures is built upon the level of products, and the four-digit industry code is determined in accordance with products (the industry code after 2003). For details, see the data and the Stata programs that are published in the website of China’s Industrial Economics. [^Back]

    [2]. ① To a large extent, the innovation investment of an enterprise is influenced by the disposable financial resources of the enterprise. So, in Model (1), the total assets of enterprises are adopted (in the logarithmic form), so as to control the influences on enterprise innovation investment that are exerted by the disposable financial resources of enterprises. However, with RDIsit, the equations (2), (3) and (4) have included the financial resources that influence the technological innovation of enterprises. Consequently, to avoid repeated calculation (Jefferson et al., 2006), the total assets of enterprises are not included in the equations (2), (3) and (4). Some other variables can influence the enterprise innovation investment as well as the capability of enterprises to transform the enterprise innovation investment into innovation outputs, innovation profits and market positions, such as the enterprise experience, incentive structure, degree of opening up, state intervention, market concentration, and comparative advantages of industries. Therefore, they are included in all the equations of the model system. [^Back]

    [3]. ② Here, with reference from the method of Bogliacino and Pianta (2012), the value added at the level of two-digit industries varies with time to control the demand-driven technological innovation. [^Back]

    [4]. ③ Without specific investigation data, it is difficult to measure the technological characteristics and innovation opportunities of an industry. Usually, the dummy variables of two-digit industries are adopted to control the technological characteristics and innovation opportunities of industries (Wu, 2007; Alvarez et al., 2011). The method is used in this paper. [^Back]

    [5]. ① It is the opinion of the reviewer that the restrictive assumption exists in the discrimination strategy. [^Back]


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This Article


CN: 11-3536/F

Vol , No. 05, Pages 16-34

May 2017


Article Outline


  • 1 Introduction
  • 2 Theoretical framework
  • 3 Empirical identification method
  • 4 Data and descriptive statistical analysis
  • 5 Major results of empirical analysis
  • 6 Micro foundation of innovation driven by market competition: further analysis by introducing enterprise ownership
  • 7 Conclusions and policy implications
  • Footnote