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Effects of Income Inequality on Technology Innovation

Author: LiShuYun
Tutor: WangDingZuo; LiPing
School: Shandong University of Technology
Course: World economy
Keywords: Income Inequality Technology Innovation Demand Size Human Capital
CLC: F124.7
Type: Master's thesis
Year: 2012
Downloads: 43
Quote: 0
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Abstract


In1955, the American economist Kuznets put forward the inverted U theory of income distribution and economic development, which attracted a large number of economists to conduct extensive research on this issue. In general, there are many researches focus on the relationship between the income gap and the long-term economic growth, but few people noticed the relationship between the income gap and innovation. Romer (1990) pointed out in the study of "endogenous technological change" that the generation of new technology is jointly determined by market supply and demand for new technologies. Therefore, there are two feasible approaches in the study of effects of income inequality on the capability of independent innovation; on the one hand, from the supply point of view, the income gap can affect the capital accumulation and then affect the innovators’investment in innovative elements; On the other hand, from the demand perspective, income inequality affects the effective demand of the new technology through the scale of demand and consumption structure.Based on reviewing and combing of related literature, this paper analyzes the path of income inequality affecting independent innovation from supply (capital accumulation mechanism) and demand (effective demand mechanism) respectively, and it also makes an empirical test on income inequality and innovation using data of developing countries, and the research shows that:the income gap affects the country’s independent innovation by three ways, i.e. the scale of demand, consumption structure and human capital. In the short term, the income gap can promote regional technical innovation capability by expanding the scale of demand for innovative products, but in the long run, it impedes regional technology innovation capability by inhibiting the upgrade of consumption structure and investment in human capital. Further, this paper makes the endogenous threshold test using the district level panel data of China from1985to2009on the issue of income gap and the technological innovation, and tries to seek the optimal range of income gap which is conducive to the promotion of technological innovation capability. The research shows that: there is an inverted "U" shaped relationship between the income gap and China independent innovation. Income gap can promote the country’s or region’s technical innovation by expanding the demand scale of innovative products, while it ultimately hinder regional technology innovation capability by inhibiting the upgrade of consumption structure and human capital accumulation. Besides, there exists a significant regional difference by the impact of the income gap, there is significantly positive effect on the eastern region and the central region, while negative but not significant effect in the western region; and at present, the urban-rural income ratio in most parts of China are at the rising phase of the inverted U-shaped curve. To these areas, the appropriate income gap enhances their capacity of independent innovation. Finally, the paper put forward some policy recommendations for China’s technological innovation and the status of the income distribution.

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CLC: > Economic > The world economic profiles,economic history,economic geography > China's economy > Economic construction and development > National income, national wealth
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