For a long time, innovation has been considered as the main guarantee for technological progress and sustainable economic growth, but how to effectively encourage R&D and enhance innovation capacity is still a problem. Many studies have discussed the role of finance in supporting R&D and innovation from the perspectives of bank development, financial market development, and financial structure. However, few studies have systematically examined the impact and mechanism of financial openness on economic technological innovation. In recent years, China has accelerated its financial opening, leading to deeper integration with the international financial market. Understanding how financial openness affects local technological innovation is of great reference value for assessing its economic effects and guiding China's financial reform and innovative growth.
For this purpose, this paper extends the creative destruction model proposed by Howitt & Aghion (1998), deducing that financial openness has a positive impact on technological innovation of an economy, which can be realized through the following two channels. Firstly, it promotes the development of domestic financial system, helps expand financing channels and lower production costs for domestic enterprises, and reduces resource loss in the process of innovation project investment, thus contributing to the realization of technological innovation. Secondly, it enhances the utilization of overseas innovation resources and markets by local innovation subjects, which improves their innovation ability. Based on the panel data of 67 economies from 1997 to 2017, the empirical tests confirm the conclusion of theoretical analysis and the two channels that financial openness affects technological innovation.
In comparison to existing studies, this paper offers several distinctive contributions. Firstly, it investigates the impact of financial openness on technological innovation through both theoretical modeling and empirical analysis. Secondly, it conducts channel analysis and test, examining how financial openness promotes technological innovation by deepening local financial development and facilitating local innovation by leveraging overseas innovation resources and markets. In conclusion, this paper provides a new perspective and evidence for understanding how financial openness affects technological innovation, and has certain reference value for analyzing the economic impact of an economy's financial openness.
Key words
Financial Openness /
Technological Innovation /
Financial Development /
Patent Application Abroad
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