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Does government R&D stimulate or crowd out firm R&D spending? Evidence from Chinese manufacturing industries

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  • Albert G.Z. Hu
  • Deng Yongxu

Abstract

We examine whether receiving a government R&D grant stimulates or crowds out a firm’s own R&D spending in Chinese manufacturing industries. Using a database that spans the population of large and medium size privately owned Chinese manufacturing firms for the period from 2007 to 2011, a matching estimator and a matching and difference in‐differences estimator, we find a large firm R&D promoting effect of government R&D: receiving a government R&D grant led to a 4 to 9‐million‐yuan increase in a firm’s own R&D expenditures. This is a significant effect since the average R&D expenditures ranged from 5 to 9 million yuan in the year before receiving the grant. To understand the mechanisms behind this effect, we compare the before‐ and after‐treatment performance and behaviour of the treated and the control firms. We find that the government R&D receiving firms became more profitable following their receipt of the grant. We also find that receiving a government R&D grant increases the likelihood of a firm continuing its R&D performance after receiving the initial grant.

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  • Albert G.Z. Hu & Deng Yongxu, 2019. "Does government R&D stimulate or crowd out firm R&D spending? Evidence from Chinese manufacturing industries," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 27(2), pages 497-518, February.
    • Handle: RePEc:wly:ectrin:v:27:y:2019:i:2:p:497-518
    DOI: 10.1111/ecot.12188
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    1. Boeing, Philipp, 2020. "Innovative China: R&D subsidies, patent measures, and productivity," ZEW Expert Briefs 20-15, ZEW - Leibniz Centre for European Economic Research.
    2. Szunomár, Ágnes, 2019. "A digitális nagy ugrás. Lassulás és modernizációs stratégiaváltás Kínában [The great digital leap. Deceleration and a change in modernisation strategy in China]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1312-1346.

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