Financialization, Monetary Policy and Technological Innovation

Abstract

Based on the research hotspot and the established status of the real economy financialization, this paper examines the impact of financialization on regional innovation from a macro perspective. In theory, economic financialization has an impact on regional innovation mainly through innovative "water reservoir effect" and "crowding effect", and the overall impact depends on the net effect of the two. In view of this, based on the 2008-2016 provincial panel data, this paper analyzes the specific effects of regional financialization on technological innovation and analyzes the transmission path of effects based on the spread of financial regions. The study finds that, on the whole, financialization has a negative overall effect on regional innovation, and this conclusion is still stable after using the instrumental variable test. After considering the spatial factors, the financialization has a positive and spatial relationship between the regions, indicating that the financialization has a tendency to spread between regions; at the same time, the impact of financialization on regional technological innovation is still significantly negative. Considering the location heterogeneity, it is found that the negative effects of financialization are more significant in the central and eastern regions. After further examining the monetary policy, it is found that the relatively loose monetary policy actually strengthens the "crowding out effect" and further worsens the suppression of innovation by financialization. The research of this paper supplements the relevant research on the development and impact of China's financialization at the macro level, and provides important empirical evidence for the government's guiding funds to "deviate from reality".

Industrial Investment Funds, Government R&D Subsidies, and Technological Innovation: Evidence From Chinese Companies

“…Even if they are, most of the funds revert back to the financial market. For instance, many companies allocate the funds that they raise to the financial market, which is operated in the primary and secondary markets, and even allocate them to real estate and other fields to obtain additional returns ( Orhangazi, 2008 ; Lapavitsas, 2011 ; Ju et al, 2013 ; Wang et al, 2017 ; Cai et al, 2019 ). Therefore, the direct financing method has not fulfilled the function of capital financing but has led to false prosperity in the financial market and a latent financial bubble.…”