R&D, innovation and firm survival in Chinese manufacturing, 2000-2006

This paper examines whether Chinese manufacturing firms survive longer if they innovate. More particularly, it focuses on whether R&D has a greater effect on firm survival than new product innovations. It compares dichotomous and continuous measures of R&D and innovation output, various duration models, heterogeneity in the effects of innovation depending on the industrial environment, and it examines whether risk modifies the effect of innovation on the hazard rate. The analysis is based on data from the National Bureau of Statistics of China, including over 100,000 firms in each year over the period 1999-2006 from all provinces and manufacturing industries in China. It is found that both R&D and product innovation, be it in terms of incidence or intensities, increase the chance of firm survival. As opposed to previous studies, the results indicate that R&D has a greater marginal effect on survival than innovation output and that various measures of risk actually increase the effect of R&D/innovation on survival.