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Innovation target responsibility system, capital allocation and regional innovation capacity: Evidence from China✰

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  • Xu, Lingling
  • Zhong, Huijie
  • Huang, Xiaodi
  • Zhu, Xiaoyu

Abstract

Using the pilot construction of innovative provinces in China as an exogenous shock, our difference-in-differences estimate shows that the target responsibility system has a significant and positive impact on regional innovation capacity, which is robust to a variety of robustness checks. Furthermore, this active innovation role is stronger in cities with higher marketization level, higher initial innovation capacity and more bank branches. Our mechanism tests show that the credit supply of local banks and fiscal expenditures on science and technology increase after this reform. Taken together, our findings argue that China's patent boom can be partly attributed to the increased emphasis of governments on innovation.

Suggested Citation

  • Xu, Lingling & Zhong, Huijie & Huang, Xiaodi & Zhu, Xiaoyu, 2023. "Innovation target responsibility system, capital allocation and regional innovation capacity: Evidence from China✰," Finance Research Letters, Elsevier, vol. 58(PD).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pd:s1544612323010346
    DOI: 10.1016/j.frl.2023.104662
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    Keywords

    Innovation target responsibility system; Regional innovation capacity; Bank credit allocation; Fiscal incentives for R&D; China;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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