Expert Commentary

The territorial dynamics of innovation in China and India

2012 study from the London School of Economics on differences between China and India in terms of business innovation.

China and India are two of the fastest-growing economies in the world, and much attention has been paid recently to their economic policies. While both are lumped together as part of the BRIC countries (Brazil, Russia, India, China), the ways in which their economies are developing are distinct. In India, growth is driven by individual entrepreneurs who develop their businesses with limited government help — and sometimes despite government involvement. Conversely, in China the government plays a huge role in development, with most enterprises linked to the central authority.

A 2012 study by researchers at the London School of Economics published in the Journal of Economic Geography, “The Territorial Dynamics of Innovation in China and India,” examines the drivers of innovation in the two countries. The researchers used data from the OECD statistics database, the China Statistical Yearbook, and the Central Statistics Office of India, to better understand the role of demographic factors, research and development (R&D) spending and the amount of innovative activity, as measured by number of patent applications.

Key findings include:

  • Innovative activity in China, measured by number of patents, is highly concentrated in the three largest regions. Guandong province accounts for 46% of total patenting activity in the country, while Beijing and Shanghai account for 14% and 13% respectively.
  • In India, most of the patenting occurs in the tech hubs of the region, and “cities such as Bangalore, Chennai, Delhi, Hyderabad, Mumbai, and Pune are at the origin of the great majority of patents.”
  • Patenting activity in India is concentrated in the top three states: Maharashtra (26%), Delhi (24%), and Andhra Pradesh (13%), who together account for 64% of all patents in the country.
  • Both countries have experienced significant increases in patents over time. In the early 1990s, patenting in India was significantly more concentrated than in China; over time, however, this reversed throughout the 2000s “when innovation became more agglomerated in Chinese provinces than in Indian States.
  • In China, R&D spending has been an important part of innovation policy, and “China’s overall R&D spending as a share of GDP almost tripled between 1995 and 2006.”
  • India’s spending on science and technology, and R&D, varies much more from year to year, and has not shown as constant an increase, compared to China.
  • In China, there is not a strong or significant relationship between R&D spending in a region and the amount of patenting — and thus innovation — taking place in that region. In India, conversely, regional spending on R&D is significant and has a very large effect on the amount of patenting occuring in the region.
  • Chinese innovation tends to be much more concentrated, whereby “richer regions with an intense agglomeration of activities, good infrastructure endowments, and a greater degree of industrial specialization not only have higher patenting rates, but also absorb innovative potential from neighboring areas.”
  • Innovative activity in India tends to be significantly more dispersed than in China, and “is shaped by a combination of regional R&D investment and social conditions.” Furthermore, spending on R&D “generates knowledge spillovers which travel across state boundaries.”

Overall, the study finds that, although both China and India have experienced a surge in innovation over the past two decades, there are significant differences in the way that it occurs — and its internal drivers. The authors suggest that policies created to “improve innovative capacity in China or India, or any country for that matter,” should go beyond the “generic recipe” of increasing spending on R&D, attracting foreign direct investment and improving human capital or infrastructure.

For a look at America’s research and development spending, and how it compares internationally, see this 2012 report from the U.S. National Science Board.

Tags: entrepreneurship