Innovation Proxy - A study of patent and economic growth in China

Abstract: Innovation is considered one of the most important drivers for economic growth but measuring innovation is complex and abstract. To measure innovation, it is common to use proxies such as patent and R&D expenditure. How good of a measure is patents when it comes to explaining economic growth? Patents have faced a lot of critique when being used as a proxy for innovation, quality adjustment for patents has therefore become increasingly popular. In China there are three different patent classes where one of the classes is for major innovations that are important for the economy. Using provincial data from 1995 to 2007 in a panel data study this thesis test these patent classes and their impact on economic growth in China. I find that the highest patent class is not significant for economic growth. Instead I find that that minor innovations are more important for economic growth. Also total number of patents performs equally well, suggesting that there is no need to use patent classes as proxy for innovation. However the result can be unreliable due to the limited time horizon.