Nexus between financial development, FDI, industrial structure change and innovation in the post-financial crisis era: Evidence from China

Abstract

China began to strive for innovation-driven economic growth by encouraging technological progress since the recent world financial crisis. Further, Chinese economy exhibited several different features since the crisis. Its financial credits surged. Meanwhile, it began to adjust its industrial structures. In order to test the effect of these policies, this paper investigates whether financial development, FDI and industrial structure changes affect innovation in this new era. The results find that provincial variation in innovation performance enlarged during this period. Further, financial development significantly improves innovation. However, FDI hampers innovation. Lastly, industrial structure adjustment promotes innovation. The paper suggests that China improve the technological skills of local firms and its human capital and introduce high-quality and efficient foreign direct investment to achieve an innovation-driven economic growth.