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Different Economic Models and Their Corresponding Innovation Systems: To Build the Way to Find China

In: The Governance Structures of Chinese Firms

Author

Listed:
  • Chun LIAO (廖春)

    (Shanghai Lixin University of Accounting and Finance)

Abstract

How many types of economic models and innovation systems exist and what are they? What is China’s basic position? An economic model or a business system is basically built upon a certain type of firm’s governance structure. Therefore, a certain type of firm’s governance structure corresponds to a certain type of business system or economic model. Every firm’s governance structure has a corresponding innovation pattern. Therefore firm’s governance structure is a basic concept that is used to define and to distinguish a certain type of economic model and its related innovation system. There are two basic types of economic models (the US leading liberal market economies and Germany leading coordinated market economies). Accordingly, there are two basic types of firm’s governance structure (market-based firm’s governance structure and coordinated firm’s governance structure). Market-based firm’s governance structure emphasizes the exclusivity of ownership boundaries, limits interfirm cooperation and employer–employee interdependence, shows free market mechanism determination. It leads to a market-oriented innovation system with price competitiveness. Coordinated firm’s governance structure encourages an overlap of ownership boundaries to share risks and to improve flexibility. It also encourages interfirm collaboration and employer–employee interdependence. These characteristics show nonmarket institutional coordination. It leads to a coordination-based innovation system with quality competitiveness. China provides an exceptional case for a dual-structured model and innovation system because it creates a clear “coordination boundary” between the two parts of the economy. The state sector is based on a coordinated firm’s governance structure, with a state strategic innovation system that is a coordination-based similar to but superior to the Germany leading European innovation system, while the private sector is built upon a market-based firm’s governance structure, with a market-oriented innovation system that is similar to the US innovation system. The dual-structured Chinese economy supports its dual convergence toward both types of advanced economy that contributes to its remarkable catching up. It also sparks its own engine for further innovation development. While the other economies are with only one type of innovation system and core competitiveness, China has two. The dual strength builds up the innovation powerhouse.

Suggested Citation

  • Chun LIAO (廖春), 2021. "Different Economic Models and Their Corresponding Innovation Systems: To Build the Way to Find China," Innovation, Technology, and Knowledge Management, in: The Governance Structures of Chinese Firms, edition 2, chapter 0, pages 1-36, Springer.
    • Handle: RePEc:spr:innchp:978-3-030-52218-6_1
    DOI: 10.1007/978-3-030-52218-6_1
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