The paper seeks to investigate the question of how expenditure for product and technology innovation may affect industrial production using panel data for China’s high technology industry, 2004-2014. We use panel data for 14 high-tech industry in China for the period 2004-2014. We conducted panel framework analyses, leading to using a pooled mean group estimator to test the long-run relationship between the variables in question. The result of the empirical test showed that expenditures for product innovation has a positive effect on industrial growth, indicating that an increase of 1% in product innovation expenditures leads to an increase of 0.88% in the growth of China’s hi-tech industry. In addition, real GDP per capita positively affects industrial growth, such that an increase of 1% in real GDP per capita induces an increase of 0.34% in industrial growth. The study, however, shows that expenditures for technology innovation have a negative effect on industrial growth. We propose policy implications based on these results.
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