R&D, Product and Process Innovation, and Firm Performance: A Case Study of the Chinese Firms

Abstract

Alongside rapid economic growth, the Chinese economy has witnessed a notable increase in research and development (R&D) expenditure, escalating from 0.56 per cent of GDP in 1996 to 2.43 per cent in 2021. Recognising the significance of innovation in economic growth, this article utilises unique firm-level data from China for the year 2012 to investigate the influence of R&D, product innovation and process innovation on firm productivity. The findings suggest that R&D positively affects the performance of Chinese firms, as measured by either firm sales or sales per permanent full-time employee. Moreover, product innovation may have a detrimental impact on firm performance, whereas the impact of process innovation lacks robustness. JEL: D22, N65, O32