Study on Contribution Rate of Scientific and Technological Progress to Economic Growth--- Empirical Study Based on Wenzhou

Transcription

1 Study on Contribution Rate of Scientific and Technological Progress to Economic Growth--- Empirical Study Based on Wenzhou XU Xu 1, WU Zhiping 2 1. Oujiang College of Wenzhou University, Wenzhou, Zhejiang, China, School of Mathematics and Information Science, Wenzhou University, China, xuxu@wzu.edu.cn Abstract: Scientific and technological progress is the main impetus of modern economic growth. Whereas, when we use Solow growth model to have accountability analysis on the contribution rate of scientific and technological progress to economic growth in Wenzhou City between 1981 and 2008, we find out that during the period from 6 th five-year plan to 10 th five-year plan, the average contribution rate of scientific and technological progress presented a remarkable tendency of gradual decline. Although from 2006 to 2008, the contribution rate of scientific and technological progress has upturned to 36.26%, it is still far away from the strategic objective determined by national science and technology development planning, and it also has huge gap when compared with developed countries. Hence, local government must enhance the regulation on local economic development environment, reduce the opportunity of pure speculative investment, construct new development platform, encourage and guide private capital to flow to scientific innovation field, accelerate the transformation of local economic growth mode, and realize the transformation from traditional economic growth mode driven by investment to modern economic growth mode driven by scientific and technological innovation. Keywords: Scientific and technological progress, Solow growth model, Contribution rate 1. Introduction Since reform and opening up, as the leading place of private economy, Wenzhou City has actively explored for innovative market economic mode, making regional economy have rapid growth. According to the survey of Wenzhou Municipal Statistics Bureau, in the first quarter of 2010, the per capita disposable income of Wenzhou urban residents reaches Yuan, with a year-on-year growth rate of 10.7%; per capita nonproductive expenditure reaches Yuan, with a year-on-year growth rate of 17.9%; the resident income of our city grows steadily, and the living standard continues to stride toward the direction of richness. However, the all-round construction of better-off society, the fulfillment of scientific outlook on growth, as well as the realization of the grand objective of constructing harmonious society require the whole society to transform the economic growth mode practically and effectively, usher in economic growth with science and technology (S&T), and remain rapid economic growth in the next 20 years. Scientific and technological progress is an important factor of economic growth, and the historic course of world economic growth has proven that each breakthrough of science and technology has brought economic take-off, and this kind of facilitation function has a tendency of acceleration. With the periodic transformation of industrialization and the promotion of the upgrading of industrial structure, it will become one of the main approaches to accelerate scientific and technological progress and keep on increasing international competitiveness. 2. Solow Growth Model Measuring the role of scientific and technological progress in economic growth, it should quantify its contribution rate with quantitative method. There are different quantitative models for analyzing the effect of S&T. The most influential models are Cobb-Douglas(C-D) production function, Solow incremental rate equation, constant elasticity of substitution (CES) production function and 441

2 transcendental logarithm (TL) production function. [1-4] The designs of the indicators in CES and TL are more desirable, but leading to having more parameters and complicated estimate. Especially as developing country as China, the statistical data is incomplete, so that the method of CES and TL are limited in actual application. Therefore, many scholars, at home or abroad, prefer to use C-D production function and Solow incremental rate equation to calculate. Solow incremental rate equation is also recommended by the National Bureau of Statistics and the Science &Technology Ministry of China. Solow growth model is a famous model in growth economics, which was proposed by American economist Solow Roberton on the base of a neutral hypothesis of production function. The model has abstracted successful the effect of S&T, and has been delaminated by American scientific and technological progress successfully. The model is an economic growth model under the frame of new classic economics, called neo-classical economic growth model or endogenous economic growth model. The main assumptions of the model are as follows: 1. Output is the net output from capital depreciation. 2. Return on scale establishes. In other words, production function is the first order homogeneous relation. 3. Labor and capital should be given return by the corresponding marginal practical productivity. 4. Labor is always full employed. 5. Make the fullest use of capital stock which is available. 6. Mutual substitution of labor force and capital establishes. 7. Neutral technical progress is available. On the assumption condition above, we adopt the C-D production function. Construct economic growth model containing scientific and technological progress factors. As shown in formula (2.1): Y = (2.1) rt α β µ A e K L e 0 In formula (2.1), Y is the output in the period of t; K is the capital investment in the period of t ; L is the labor investment in the period of t; A 0 is the base period level of S&T; r is scientific and technological progress rate; µ is error; α is capital output elasticity, β is labor output elasticity; In order to make the calculation convenient, logarithm both sides of the formula (2.1), that is: ln Y = ln A + r t+ α ln K + β ln L+ µ (2.2) 0 Then differencing both sides of the formula (2.2), that is Y/Y=r t+α K/K+β L/L. Taking time incremental t=1, Y/Y, K/K, L/L on both sides, namely relative growth rate of Y,K,L, are named y, k, l respectively, so: y= r+ α k+ β l (2.3) Formula (2.3) is Solow incremental rate equation. y divides each side of the equation, then, r/y+ α k/y+β l/y=1. In this equation, Let EA=r/y, then EA means the contribution rate of scientific and technological progress to economic growth; Let EK=α k/y, then EK means the contribution rate of capital investment to economy growth; Let EL=β l/y, then EL means the contribution rate of labor investment to economy growth, so: EA+EK+EL=1. Using this formula, we can calculate the contribution rate of scientific and technological progress to economy growth. In order to study the influence of scientific and technological progress to economy growth over a long period, we should calculate the average contribution rate indicators, so that we can compare indicators in every period conveniently. The calculating formula is: Y K L * n n n m = ( 1) α ( 1) β ( 1) (2.4) n n n Y K L In formula (2.4), Y n, K n and L n mean the growth rate of total output, labor and capital investment in the reporting period to origin period respectively. Y 0, K 0 and L 0 mean the output, labor investment and capital investment in the origin period respectively. * m * EA = (2.5) * y In formula (2.5), m * represents average scientific and technological progress rate of a period; y * represents average economic growth rate of a period. 442

3 3. Empirical Study 3.1 Index Determination and Parameter Calculation To correctly reflect the actual situation of economic growth, when measuring the influence of scientific progress on economic growth, we must select the index of output, labor input and capital input with deliberation Setting of labor input index and calculation of elastic coefficient of labor output Labor resource [5] includes the two parts of labor force and non-labor force. Labor force means the population of a country or a region above a certain age (generally above 16 years old), actually engaged in or having not engaged in social and economic activity. Among the labor force, the population actually engaged in social labor and obtaining labor remuneration or operating income is called quantity of employment. The assumption of labor force is always fully employed proposed in Solow growth model is an assumption under ideal condition. Therefore, labor input index shall not apply possible labor consumption, but actual labor consumption. Hence, when having study on production process with macro approach, we can replace labor input index with quantity of employment, so as to indicate labor consumption. In the situation when other conditions remain unchanged, the elasticity of labor output is the ratio of aggregate labor income to GDP. However, in consideration of the completeness of statistics data, we shall apply per capita disposal income and per capita GDP to replace labor output elasticity β. Per capita disposable income can apply the weighted average of per capita urban disposable income and per capita rural disposable income, i.e., per capita disposable income = (urban population per capita disposable income + rural population per capita net income)/ total population of the year Setting of capital input index and calculation of elastic coefficient of capital output For the reason of history, great changes have taken place in the caliber and range of statistical indexes, and the collection of part of the data has great difficulty. In particular, it is difficult to directly search for capital input data from the statistics data. According to relevant measuring method, it conforms to the actual situation to take the gross social investment of Wenzhou in fixed assets in the past years as capital input. We must point out that all the merit indexes shall be converted from current price to comparable price. Therefore, the social capital investment volume of Wenzhou City in past years shall be converted as to constant price in When applying Solow growth rate equation to have study on the function of scientific progress, we must determine capital output elasticity α. In the situation when other conditions remain unchanged, according to the assumption of Solow growth model on unchanged returns on scale and mutual substitution of labor force and capital, α+β=1 establishes. The calculation result of labor output elasticity β of Wenzhou City between 1981 and 2008 has been obtained from Table 1, and hence we can estimate capital output elasticity α. The indexes such as capital output elasticity, gross social investment in fixed assets, quantity of employment and ring growth rate are as shown in Table Setting of output index GDP is the final result of production activity of all the permanent units of a country or a region in a certain period calculated according to market price. It is a basic index to measure economic growth scale and growth rate. At present, most of the countries or regions in the world still apply GDP index. Although it is of certain restriction to only apply GDP, it also has its reasonableness. Therefore, this paper applies the data of GDP of Wenzhou City from 1981 to 2008 after eliminating price factor as the gross output to reflect economic growth, that is, convert the GDP of Wenzhou City in past years with fixed price in GDP of Wenzhou City from 1981 to 2008 in fixed price is as shown in Table Calculation of Contribution Rate of Scientific Progress to Economic Growth According to the data in Table 1, firstly, multiply the growth rate of quantity of employment each year l with labor output elasticity β, and get βl; secondly, multiply the growth rate of investment in fixed assets each year k with capital output elasticity α, and get αk; thirdly, introduce Solow growth equation and get scientific progress rate r, that is, r=y-αk-βl. In short, annual scientific progress rate is the balance of annual growth rate of GDP after deducting weighted annual capital growth rate and annual labor growth 443

4 rate from annual growth rate of GDP. Thus, we can calculate labor input, capital input and contribution rate of scientific and technological progress to economic growth. Table 1 Main Economic Indexes of Solow Growth Model Year GDP TIFA AGR QE AGR PCGDP PCDI LOEC β COEC α Notes: Data source: Wenzhou Statistical Yearbook-2009, calculated as to fixed price in GDP: Gross Domestic Product (billion Yuan); TIFA: Total Investment in Fixed Assets (billion Yuan); AGR: Annual Growth Rate (%); QE: Quantity of Employment (Ten thousand Person); PCGDP: Per Capita GDP (Yuan); PCDI: Per Capita Disposable Income (Yuan); LOEC: Labor Output Elasticity Coefficient (%); COEC: Capital Output Elasticity Coefficient (%). Apart from being influenced by the three core factors such as labor input, capital input and scientific and technological progress, economic growth is also influenced by the factors such as social environment, macro policy, international situation and accuracy of statistics data. Therefore, in several years (such as 1994), the contribution rate of scientific and technological progress to GDP was negative value. To eliminate the error in the data of each year, we can have smoothing treatment on the data. Since relevant national policy has certain stability, this paper divides the period from 1981 to 2008 into six stages that 444

5 range from 6 th five-year plan ( ) to 11 th five-year plan (because of shortage of relevant data from 2009 to 2010, 11 th five-year plan only selects ), applies the formula of compound interest growth, and calculates the annual growth rate of GDP, labor and capital input of each period one by one, so as to eliminate the influence of random factor. The calculation result is as shown in Table 2. Table 2 Average Contribution Rate of Each Factor to Growth of GDP in Wenzhou City from 1981 to 2008 (unit: %) Year GRGDP LGR FCIGR STPGR LCR CCR STPCR Average Notes: GRGRP: Average Annual Growth Rate of GDP; LGR: Average Annual Labor Growth Rate; FCIGR: Average Annual Fixed Capital Investment Growth Rate; STPGR: Average Annual Scientific and Technological Progress (%) Growth Rate; LCR: Average Annual Labor Contribution Rate; CCR: Average Annual Capital Contribution Rate; STPCR: Average Annual Scientific and Technological Progress Contribution Rate. 3.3 Result Analysis According to Table 2, we discuss the contribution rate of each factor to economic growth during the period from 6 th five-year plan to 11 th five-year plan stage by stage (as shown in Figure 1), explore for economics interpretation, and further analyze the underlying reason of the promotion of scientific and technological progress to economic growth capital growth 70 science and technology 60 progress contribution 50 GDP growth rate(%) Fipure 1 Contribution Rate of Each Essential Element to Economic Growth(%) growth rate(%) %)laber Period( year) Contribution Rate( Figure 1 Contribution Rate of Each Factor to Economic Growth 6 th five-year plan ( ): after reform and opening up, with a tradition of processing business, Wenzhou people took the opportunity of releasing national policy, took the lead in dealing with business, and formed the splendid situation of every family dealing with family industry and every one developing private economy. Rapid rural industrialization and urbanization promoted the popularization and application of scientific achievement, and pushed the fast economic growth. In this period, annual 445

6 growth rate of GDP of Wenzhou reached 15.42%, average annual growth rate of scientific and technological growth reached 10.58%, and average contribution rate of science and technology to the growth of GDP reached as high as 68.57%. Economic growth was mainly driven by scientific progress, and the average contribution rate of labor force and capital was respectively 14.00% and 17.43%. 7 th five-year plan ( ): in this period, the reform and growth of Wenzhou attracted great attention of central government. In the second half year of 1986, Wenzhou was authorized to have reform trial as pilot site of rural comprehensive reform in China. However, since 1989, because of the fluctuation in national politics and policy, Wenzhou economy was severely impacted. During 7 th five-year period, GDP of Wenzhou was firstly high and then low, with average annual growth rate of only 7.73%, average annual growth rate of scientific and technological progress reaching 6.14%, and average contribution rate of science and technology to growth of GDP reaching as high as 79.38%. The contribution rate of labor force can be ignored (-0.10%). Compared with that in 6 th five-year period, the contribution rate of capital slightly increased and reached 20.72%. 8 th five-year plan ( ): annual growth rate of GDP reached as high as 27.80%, average annual growth rate of scientific progress reached 11.10%, and average contribution rate of science and technology to the growth of GDP reached 39.93%. 8 th five-year plan was still the period with rapid economic and scientific growth. However, economic growth gradually turned from scientific dominant to capital dominant, with contribution rate of capital reaching as high as 61.10%. Especially after South Tour Speeches of Deng Xiaoping, our country determined the direction of socialist market economy, the growth way of Wenzhou received unanimous affirmation of the whole country, the argument of capitalism or socialism disappeared since then, and the enthusiasm of private investment soared to unprecedented heights. The growth rate of investment of whole society in fixed assets reached as high as 59.22%. High growth of investment in fixed assets definitely formed the wane and wax of the contribution rate of science and technology. The contribution rate of capital exceeded that of science and technology for the first time and became the first factor of economic growth. Compared with 7 th five-year and 6 th five-year, although the contribution rate of scientific progress to GDP declined, the speed of scientific progress was still strong. 9 th five-year plan ( ): in this period, capital accumulation of Wenzhou accelerated; meanwhile, with the boost of develop-the-west strategy, Wenzhou mode became the model for the whole country to learn. In later period, Wenzhou capital presented the tendency of transfer investment in different regions. During 9 th five-year plan, the annual growth rate of GDP was 13.13%, average annual growth rate of scientific progress was 6.95%, average contribution rate of science and technology to the growth of GDP was 39.93%, and the contribution rate of capital reached as high as 50.62%. Meanwhile, the dependency level of economic growth to capital increased, and the feature of capital-dominant economic growth was very obvious. 10 th five-year plan ( ): after the entry of WTO, the whole country had further multi-directional opening up, the dynamics of each place in investment attraction increased, the speculative opportunity such as housing market and equity market also increased, and meanwhile the land price in Wenzhou shot up and housing price increased month by month. Under the temptation of windfall profit of speculation, Wenzhou capital presented the phenomenon of large-scale transfer to different regions, and the driving force of the enterprises in technical transformation and productivity promotion declined. Although local government also paid great attention to investment attraction in later phase of this period, the growth rate of GDP had already fallen behind relatively. During 10 th five-year plan, annual growth rate of GDP was 13.66%. During this period, because of the extraordinary growth of quantity of employment from 2003 to 2004, the average contribution rate of labor force factor reached as high as 36.73%. Meanwhile, the average contribution rate of capital factor even reached 60.09%, while the average annual growth rate of scientific progress was only 0.43%, and the average contribution rate of science and technology to the growth of GDP was also as low as 3.18%. Wenzhou economy started to enter a critical period of economic structure adjustment. 11 th five-year plan ( ): annual growth rate of GDP was 11.36%, and average annual growth 446

7 rate of scientific progress was 4.46%. During this period, the contribution rate of scientific progress to GDP was obviously higher than that in 10 th five-year plan, and reached 36.26%. The driving forces of capital and science and technology in Wenzhou economic growth almost had equal shares. During this period, Wenzhou City comprehensively carried out scientific outlook on growth, actively implemented the strategy of rejuvenating the city through science and education and strengthening the city through talents, and accelerated in the construction pace of innovative city. Through carrying out six innovations of industrial innovation, technical innovation, path innovation, brand innovation, mechanism innovation and talent innovation, it energetically promoted the construction of regional innovation system and created regional innovation environment, kept on improving regional innovation capability, obviously improved overall scientific strength and scientific progress level, and powerfully promoted the strategic adjustment of economic structure in the whole city. In recent years, Wenzhou City has made great efforts in increasing scientific input. Technology funds input increased from 2.63 billion Yuan in 2005 to 4.64 billion Yuan in 2008, with an annual average growth rate of 21.93%, and new industrial products output increased from billion Yuan in 2005 to 31.47billion Yuan in 2008, with an annual average growth rate as high as 39.49%. Besides, the input in the aspects such as enterprise technology development, research and experimental development are also increased by large scale. Information scale index, innovative and high technology industrial added value, government financial input for the popularizing science are improved a lot. See Table 3 for the detailed data. Table 3 Wenzhou Statistics of Relevant Technology Indicators and Annul Growth Rate Year AA Index Stats. GR Stats. GR Stats. GR Stats. GR GR TFI ETDI REDI ISI NIPO IHTIAV GFIPS Notes: Stats. :The Statistics of every Indictor; GR: Growth Rate (%); AAGR: Average Annual Growth Rate (%); TFI: Technology Funds Input (billion Yuan); ETDI: Enterprise Technology Development Input (billion Yuan); REDI: Research and Experimental Development Input (billion Yuan); ISI: Information Scale Index (million family); NIPO: New Industrial Products Output (billion Yuan); IHTIAV: Innovative and High Technology Industrial Added Value (billion Yuan); GFIPS: Government Financial Input for the Popularizing Science (thousand Yuan). 4. Conclusion and Suggestion Although restricted by the reliability of primary data and the model itself, the measurement and analysis result is far from comprehensively and accurately reflecting the contribution rate of scientific and technological progress to the economic growth of Wenzhou, the above-mentioned measurement and analysis result can roughly indicate and explain the influence of scientific and technological progress on the economic growth of Wenzhou since 6 th five-year plan. In the early period of reform and opening up, because of the rapid growth of family industry, the rural industrialization of Wenzhou promoted large-scale popularization and application of science and technology. Although when we look back, most of the science and technologies widely applied in Wenzhou can not be considered as advanced scientific achievement, the influence brought by them is very amazing. In 1990s, especially after South Tour Speeches of Deng Xiaoping and the issue of Company Law, the confidence and enthusiasm of the residents in investment reached unprecedented heights, and the role and influence of capital factor in 447

8 economic growth obviously enhanced. Like wane and wax, the contribution rate of science and technology factor decreased slightly, and by the beginning of this century it even decreased to the lowest point of 3.18%. It indicates that extensive economic growth of relying on labor force and capital factor that has been applied by Wenzhou for a long term can not continue, and the growth mode of Wenzhou has entered a critical period of transformation and upgrading. Although since 11 th five-year plan, the contribution rate of scientific progress to economic growth of Wenzhou has upturned to 36.26%, it is still far away from the objective of By 2020, the proportion of the input of the whole society in GDP will improve to above 2.5%, the contribution rate of scientific progress will strive to reach above 60%, and the depending degree on external technology will lower to below 30% specified in Outline of National Medium-to-long-range Program for Scientific and Technological Growth ( ). Meanwhile, it still has a huge gap with the developed countries in the world. [6] In the aspect of international experience, the countries such as America, Japan and Finland are acknowledged as innovative countries in the world, and the general contribution rate of scientific progress in these countries is above 70%. Hence, to realize the transformation from traditional economic growth mode driven by investment and labor force to modern economic growth mode driven by scientific innovation, local government must enhance the regulation on the environment of regional economic growth, reduce the opportunity of pure speculative investment, encourage and guide private capital toward scientific innovation field, and accelerate the transformation of regional economic growth mode. Acknowledgments: The authors acknowledge the financial support of the project of soft science of Zhejiang, (No.: 2010C35048), the Project of Science & Technology of Zhejiang (No.: 2009C35003), the Department of Education of Zhejiang Province (No.: Y ), the Project of Science & Technology of Wenzhou (No.: R ) and Cultural Project of Wenzhou. The author is also very grateful to the strong support of Professor Zhu Kangdui. References [1]. Marco Neuhaus. Solow Growth Accounting and Stylized Facts, Physica-Verlag HD, 2006:7~38 [2]. Paul J. J. Welfens. Economic Integration, Technological Progress and Growth, 2008:127~143 [3]. Thierry V.. Evolution of Economic Growth Models, Springer Berlin Heidelberg, 2009:509~607 [4]. Zheng Xiaoyong. A Study of Influence on the Contribution Rate of Zhejiang Economic Growth, Economy and Management, 2004, 18(7):66~71(in Chinese) [5]. Dong Ximing. A Analysis on the Contribution of the Scientific and Technological Progress to the Economic Growth in Zhejiang, Value Engineering, 2006, (3):12~16(in Chinese) [6]. Qiu Dongyang. The Empirical Analysis of the Contribution Rate of Chongqing City Technological Development to Economic Growth Based on Data. Chongqing Institute of Technology, 2007, 21(6):11~20(in Chinese) [7]. Wenzhou Bureau of Statistics. Wenzhou Statistical Yearbook (2009), Beijing: China Statistics Press,