The Effect of Firm Size on Regional Innovation Efficiency in China

The paper uses panel data of 30 provinces in China from 1998 to 2012 to calculate their innovation efficiency by DEA model. Meanwhile we use Tobit model to discuss the effect of firm size on regional innovation efficiency. In order to solve endogeneity problem, we choose an instrumental variable to replace firm size. Although from Figure 2, firm size and innovation efficiency show an inverted U-shaped relationship, at this stage enterprises in China are usually small, which leads most of them stay at the left side of inverted U-shaped curve. Our main conclusion is that at this stage in China, firm size and innovation efficiency have a linear relationship. Other variables such as dependence on trade, level of urbanization and education also have positive effect on innovation efficiency.