Abstract: Product innovation and the interaction between supply and demand could create new demand and heighten added value, and also could help enterprise to defuse overproduction crisis and deal with the crisis of increasing input costs, therefore, it is one of the most important powers for improving economic growth. The response analysis of impulse function method based on SVAR model also reveals the interaction between the inputs of developing new product and the sales revenue of new product or the market demand for new product in large-scale and medium-scale industrial enterprises in China. It is found that the sales revenue of new product or the market demand for new product could remarkably improve the inputs for developing new product, and this effect could continue for three years. The inputs for developing new product could improve the sales revenue of new product and GDP two years later. At the same time, the sales revenue of new product could remarkably improve GDP, and the effect could continue for five years. It is also found that the growth of GDP could restrain the inputs for developing new product and sales revenue for new product or market demand of new product in such a manner, and the fact could reveal extensive mode of economic growth in a way. The analysis of variance decomposition method reveals that the contribution rate of the sales revenue of new product to the inputs change for developing new product is reached at 44.6%, and the contribution rate of the sales revenue of new product to the growth of GDP is reached at 40%. At present, some policies should be formulated and the inputs for product innovation and related technology development should be increased, and cousumption should be enlarged through active fiscal policy and income policy. The interaction between the inputs for developing new product and the market demand for new product should be fundamentally improved.

Key words: product innovation, interaction between supply and demand, endogenous growth, SVAR model