Technology import, secondary innovation, and industrial structure optimization: A potential innovation strategy for China

• Date: 01 May 2020
• Author: Henan Ma,JiaoJiao Zheng,Liangping Yang,Hongwei Liao
• Published date: 01 May 2020
• DOI: http://doi.org/10.1111/1468-0106.12326

SPECIAL ISSUE ARTICLE

Technology import, secondary innovation, and

industrial structure optimization: A potential

innovation strategy for China

Hongwei Liao

1,2

| Liangping Yang

3

| Henan Ma

3

|

JiaoJiao Zheng

4

1

Center for China Public Sector Economy

Research, Jilin University of China,

Changchun City, China

2

School of Finance, Changchun

Guanghua University of China,

Changchun City, China

3

School of Economics, Jilin University of

China, Changchun City, China

4

School of Economics, Renmin University

of China, Beijing, China

Correspondence

Jiaojiao Zheng, School of Economics,

Renmin University of China, No. 59,

Zhongguancun Street, Beijing 100872,

China

Email: zhengpchym@163.com

Abstract

To enhance people’s lives, China needs to maximize

the opportunities of technological changes and conduct

innovations to optimize its industrial structure in the

context of intellectual property rights (IPR) protection.

The present paper analyses how industrial structure

can be optimized by considering technology imports

and innovations, and proposes an innovation strategy

for China. We decompose imported technology into

embodied technology imports (ETI) and disembodied

technology imports (DTI). We found that ETI and DTI

have negative effects on industrial structure rationali-

zation and supererogation. Moreover, secondary inno-

vations based on ETI depress industrial rationalization

and supererogation, while secondary innovations based

on DTI contribute positively. Therefore, DTI should be

valued and the absorption of introduced technology

improved. It is important to choose the appropriate

mode of technology imports, to coordinate on the ratio

of technology imports to secondary innovations, and to

enhance the absorption of imported technology with

the gradual improvement of IPR protection.

KEYWORDS

absorptive capacity, disembodied technology import, embodied

technology import, industrial structure, secondary innovation

Received: 2 April 2020 Accepted: 9 April 2020

DOI: 10.1111/1468-0106.12326

Pac Econ Rev. 2020;25:145–160. wileyonlinelibrary.com/journal/paer © 2020 John Wiley & Sons Australia, Ltd 145

1|INTRODUCTION

As China’s economy continues to grow steadily, it faces both opportunities and challenges

associated with the increase in intellectual property rights (IPR) protection and a new round

of industrial revolution. During this critical period of building a “moderately prosperous soci-

ety”in all respects, China has innovated to optimize its industrial structure and economic

development in what is referred to as “reverse-transmission innovation”. Innovation is

playing an increasingly important role in China, as reflected in the gradual increase in R&D

expenses, and could help China attain technological leadership in the context of globalization

(Bruche, 2009; Esteban-Jardim & Urraca-Ruiz, 2018); however, China’s innovation perfor-

mance still lags behind other countries (Cornell University, INSEAD, WIPO, 2017). Endoge-

nous innovation based on imported technology (Wu, Ma, Shi, & Rong, 2009), or secondary

innovation, can enhance the capacity for independent innovation in China. Secondary inno-

vation involves reinnovation based on imported technologies and mastering all or part of the

core technologies or IPR to improve independent innovation ability. With globalization, fac-

tors flow more easily and more efficiently; thus, technology import has become a prevalent

mode for countri es to improve thei r technological level. China has formed a path dependence

on the import of technology, which has created an inertia that undermines innovation. Due

to the rise in the protection of IPR, the import of technology has been severely hampered.

Thus, this paper focuses on the selection between technology import and innovation in the

context of anti-globalization by answering the questions of how importing technology affects

industrial str ucture optimiz ation and how seco ndary innovati on based on import ed technol-

ogy affects the industrial structure.

In China, enterprises are involved in importing frontier technology to narrow the technical

gap with developed countries (Coe, Helpman, & Hoffmaister, 1995; Dahlman, 2007). Using

imported technology, they conduct secondary innovation to open up a possible path of indus-

trial transformation and upgrading. Drawing on previous studies, the paper empirically exam-

ines the effects of imported technology and secondary innovation on industrial structure

optimization. Aiming to provide a solid basis for the supererogation and rationalization of the

Chinese industrial structure, this paper clarifies the impact of imported technology and second-

ary innovation on the industrial structure.

In terms of the effect of imported technology, studies have mainly focused on the interaction

of imported technology and economic development, and there is little literature on the direct or

indirect effects of imported technology on the industrial structure. Acemoglu and Zilibotti (1999)

showed that the technology transferred from developed countries to developing countries would

result in a decrease in the total factor productivity in developing countries, which negatively

affects developing countries. Caselli and Coleman (2006) emphasized that by using technology

imports, developing countries could achieve rapid economic development. In consideration of

the effect on the industrial structure, imported technology is considered an important aspect of

technological progress (Lin & Kong, 2016), especially import spillover, which plays a relatively

significant role (Wang, 2014), and technological progress drives industrial structure optimiza-

tion (Hoffmann, 1958; Rostow, 1969; Shinohara, 1962). Peneder (2003) adopted a panel data

model and found that imported technology efficiently altered the labour productivity of indus-

trial sectors, optimizing the allocation of production factors and directly promoting industrial

upgrading. Conversely, Lin, Pan, and Liu (2006) found that making technology choices was

important in the process of importing technology and that inappropriate technology imports

had a negative effect on technology advancement, further depressing industrial structure

146 LIAO ET AL