Returns to research and development in Chinese industry: Evidence from state-owned enterprises in Beijing

This paper estimates returns to research and development (R&D) in Chinese industry. Using a firm-level data set on innovation activity in large- and medium-size industrial enterprises during 1991-1997 in the Beijing area, we estimate three equations-an R&D expenditure equation, a production function, and a profit function. Panel data estimation methods are applied to a semibalanced data set constructed from the raw sample. We find substantial and significant returns to R&D in the cross-section dimension. We also find substantial cross-industry variation in the return to R&D, which declined considerably over the sample period. R&D expenditure increases less than proportionately with firm size, it also seems to be unrelated to cash flow. (C) 2003 Elsevier Inc. All rights reserved.