Whether the optimization of institutional environment （administration, legal system and cultural credit） is conducive to promote technological innovation is an important proposition for achieving high-quality economic growth. Former researches have not examined the particularity of the relationship between institutional environment and technological innovation under China’s system characteristics. This paper attempts to make up this deficiency, which has great significance for China to the implementation of ‘innovation-driven development strategy’. Firstly, this paper analyzes the impact mechanisms of the three sub-items of institutional environment on technological innovation. The fiscal decentralization of central government leads to " promotion tournaments” among local governments. Therefore, local governments tend to implement local protection, thereby curbing technological innovation. Poor legal system and cultural credit sub-environment inhibit technological innovation through increasing liquidity risk and other channels. On the contrary, the optimization of institutional environment can promote technological innovation through mechanisms such as a reduction in transaction costs. Secondly, this paper analyzes the interactions among the three sub-environments and the relationship between sub-environments and technological innovation. In order to accumulate economic performance rapidly, local governments tend to impose regulatory intervention on judicial departments, and the " One System” of Chinese courts provides the channels and capabilities for this behavior. Meanwhile, local governments affect the construction of cultural credit sub-environment through resources allocation, and legal sub-environment imposes an important influence on the cultural credit sub-environment through the selection of social norms. Therefore, administration governance is the most fundamental determinant of institutional environment affecting technological innovation. Finally, empirical test has been carried out at the national and regional levels by the dynamic panel space error model （SEM） and the data of China’s 30 regions from 2001 to 2014. Then we come to the conclusions as follows: on the whole, the optimization of institutional environment plays a significant role in promoting technological innovation; this paper subdivides the structure of the institutional environment and finds that, compared with legal and cultural credit sub-environments, the optimization of the administration sub-environment has a stronger positive effect on technological innovation; furthermore, the optimization of administration sub-environment can strengthen the promoting effects of legal and cultural credit sub-environments on technological innovation. Meanwhile, the optimization of legal sub-environment can reinforce the promoting effect of cultural credit sub-environment on technological Innovation. In addition, the level of institutional environment decreases gradually in accordance with the order of eastern, central and western regions, and the positive effects of institutional environment on technological innovation also decline in turn. The potential contributions of this paper are as follows: firstly, being combined with the system characteristics in China, this paper explains the special impact mechanism of institutional environment on technological innovation, and shows that administration sub-environment is the most fundamental determinant of institutional environment affecting technological innovation, providing the decision-making direction and basis for further optimizing institutional environment; secondly, the promoting effect of institutional environment on technological innovation presents regional heterogeneity, providing an empirical basis for the central government to formulate differentiated regional development policies.
Does the Optimization of Institutional Environment Help to Promote Technological Innovation? Empirical Analysis Based on China’s Provincial Dynamic Space Panels
Journal of Finance and Economics Vol. 44, Issue 04, pp. 47 - 61 (2018) DOI:10.16538/j.cnki.jfe.2018.04.004
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Cite this article
Xu Hao, Feng Tao. Does the Optimization of Institutional Environment Help to Promote Technological Innovation? Empirical Analysis Based on China’s Provincial Dynamic Space Panels[J]. Journal of Finance and Economics, 2018, 44(4): 47-61.