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Do Innovation Subsidies Make Chinese Firms More Innovative? Evidence from the China Employer Employee Survey

Author

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  • Hong Cheng
  • Hanbing Fan
  • Takeo Hoshi
  • Dezhuang Hu

Abstract

The Chinese government has been using various subsidies to encourage innovations by Chinese firms. This paper examines the allocation and impacts of innovation subsidies, using the data from the China Employer Employee Survey (CEES). We find that the innovation subsidies are preferentially allocated to state owned firms and politically connected firms. Of these two (state ownership and political connection), political connection is more important in determining the allocation. We also find that the firms that receive innovation subsidies file and receive more patents, are more likely to introduce new products, but do not necessarily file and receive more patents abroad. Finally, the firms that receive innovation subsidies do not have higher productivity, more profits, or larger market shares. Overall, the results point to inefficiency of allocation of innovation subsidies and show that the subsidies encourage only incremental innovations and not radical ones.

Suggested Citation

  • Hong Cheng & Hanbing Fan & Takeo Hoshi & Dezhuang Hu, 2019. "Do Innovation Subsidies Make Chinese Firms More Innovative? Evidence from the China Employer Employee Survey," NBER Working Papers 25432, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:25432
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    1. Luo, Lianfa & Cheng, Zhiming & Ye, Qingqing & Cheng, Yanjun & Smyth, Russell & Yang, Zhiqing & Zhang, Le, 2023. "Nonmonetary Awards and Innovation: Evidence from Winning China's Top Brand Contest," GLO Discussion Paper Series 1345, Global Labor Organization (GLO).
    2. Chen, Quanrun & Gao, Yuning & Pei, Jiansuo & de Vries, Gaaitzen & Wang, Fei, 2022. "China's domestic production networks," China Economic Review, Elsevier, vol. 72(C).
    3. Deng, Yue & Zhou, Yuqian & Hu, Dezhuang, 2023. "Grandparental childcare and female labor market behaviors: Evidence from China," Journal of Asian Economics, Elsevier, vol. 86(C).
    4. Dahlström, Petter & Lööf, Hans & Sjöholm, Fredrik & Stephan, Andreas, 2023. "The EU’s Competitive Advantage in the 'Clean-Energy Arms Race'," Working Paper Series 1483, Research Institute of Industrial Economics.
    5. KAJITANI Kai & CHEN Kuang-hui & MITSUNAMI Kohei, 2022. "How Do Industrial Guidance Funds Affect the Performance of Chinese Enterprises?," Discussion papers 22110, Research Institute of Economy, Trade and Industry (RIETI).
    6. Anders Gustafsson & Patrik Gustavsson Tingvall & Daniel Halvarsson, 2020. "Subsidy Entrepreneurs: an Inquiry into Firms Seeking Public Grants," Journal of Industry, Competition and Trade, Springer, vol. 20(3), pages 439-478, September.
    7. Jonathan Eberle & Philipp Boeing, 2019. "Effects of R&D subsidies on regional economic dynamics: Evidence from Chinese provinces," Working Papers on Innovation and Space 2019-03, Philipps University Marburg, Department of Geography.
    8. Chen, Yunsi & Hu, Dezhuang, 2023. "Why are exporters more gender-friendly? Evidence from China," Economic Modelling, Elsevier, vol. 118(C).
    9. Tian Xiong, 2022. "Mergers and Acquisitions by Chinese Multinationals in Europe: The Effect on the Innovation Performance of Acquiring Firms," EIIW Discussion paper disbei310, Universitätsbibliothek Wuppertal, University Library.
    10. Ziyang Yue & Gangqiang Yang & Haisen Wang, 2023. "How do tax reductions motivate technological innovation?," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-18, December.
    11. Giuntella, Osea & Wang, Tianyi, 2019. "Is an Army of Robots Marching on Chinese Jobs?," IZA Discussion Papers 12281, Institute of Labor Economics (IZA).
    12. Jiemiao Dong & Yinxia Mi & Zhuangxiong Yu, 2022. "Industrial plans, export destinations and product quality," The World Economy, Wiley Blackwell, vol. 45(3), pages 812-840, March.
    13. Li, Qing & Hu, Dezhuang & Li, Tang, 2022. "The innovation of family firms in China: New evidence from the China employer-employee survey," China Economic Review, Elsevier, vol. 72(C).
    14. Jiang, Xiandeng & Kong, Dongming & Xiao, Chengrui, 2020. "Policy certainty and heterogeneous firm innovation: Evidence from China," China Economic Review, Elsevier, vol. 63(C).
    15. Alexandre, Fernando & Chaves, Miguel & Portela, Miguel, 2022. "Investment Grants and Firms' Productivity: How Effective Is a Grant Booster Shot?," IZA Discussion Papers 15779, Institute of Labor Economics (IZA).
    16. Lee Branstetter & Guangwei Li, 2023. "The Challenges of Chinese Industrial Policy," NBER Chapters, in: Entrepreneurship and Innovation Policy and the Economy, volume 3, pages 77-113, National Bureau of Economic Research, Inc.

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    JEL classification:

    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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