Measuring China’s Innovative Capacity : A Stochastic Frontier Exercise

We adopt a Stochastic Frontier Analysis (SFA) of innovative activity to disentangle countries' patenting capacity from patenting efficiency. We analyze the determinants of innovative capacity of a set of 26 OECD countries plus China, over the period 1992-2007, to show if and how China's technological activity is growing faster than commonly held, in comparison to the most innovative countries of the world. Our results highlight that both internal and external elements jointly contribute to enhance countries' innovative capacity and efficiency. In particular, while government funded R&D is more important for innovative capacity, private funded R&D as well as Foreign Direct Investments (FDI) affect technical efficiency. Moreover, as for the whole set of countries FDI seem to exert a resource – seeking role (as they affect negatively technical efficiency), this does not happen for China, where FDI exert a positive effect. Results are robust to the use of alternative measures of innovative inputs (such as high education expenditure in R&D and R&D personnel, but also FDI flows rather than stocks). Finally, human capital measures are generally not very effective in enhancing patenting efficiency, apart from tertiary education