IDEAS home Printed from https://ideas.repec.org/a/eee/chieco/v92y2025ics1043951x25000835.html

The cross-border spillover effect of U.S. government subsidies on firms' innovation: Evidence from the Sino-US supply chain

Author

Listed:
  • Hu, Beibei
  • Luan, Qiao
  • Wang, Kai
  • Zhu, Linke

Abstract

This study systematically assessed the cross-border spillover effects of U.S. government subsidies on the Sino-US supply chain using a multi-period difference-in-differences approach. Our findings indicate that the U.S. government's subsidy policies had an overall positive effect on the innovation of related Chinese firms throughout the supply chain. However, these policies had a significant negative impact on the innovation performance of Chinese suppliers to U.S. subsidized firms, while positively affecting the innovation performance of Chinese customers and competitors. Additionally, we found that the U.S. government's subsidy policy has facilitated the reestablishment of the U.S. industrial chain, indirectly promoting the development of production advantages for downstream firms in China. This has compelled the Chinese government to increase subsidies for related competitive industries as well.

Suggested Citation

  • Hu, Beibei & Luan, Qiao & Wang, Kai & Zhu, Linke, 2025. "The cross-border spillover effect of U.S. government subsidies on firms' innovation: Evidence from the Sino-US supply chain," China Economic Review, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:chieco:v:92:y:2025:i:c:s1043951x25000835
    DOI: 10.1016/j.chieco.2025.102425
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1043951X25000835
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.chieco.2025.102425?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 701-728.
    2. Clément de Chaisemartin & Xavier D'Haultfœuille, 2020. "Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects," American Economic Review, American Economic Association, vol. 110(9), pages 2964-2996, September.
    3. Sergio G. Lazzarini, 2015. "Strategizing by the government: Can industrial policy create firm-level competitive advantage?," Strategic Management Journal, Wiley Blackwell, vol. 36(1), pages 97-112, January.
    4. Nathan Nunn & Nancy Qian, 2011. "The Potato's Contribution to Population and Urbanization: Evidence From A Historical Experiment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(2), pages 593-650.
    5. Teresa C. Fort & Justin R. Pierce & Peter K. Schott, 2018. "New Perspectives on the Decline of US Manufacturing Employment," Journal of Economic Perspectives, American Economic Association, vol. 32(2), pages 47-72, Spring.
    6. Guy Michaels & Ashwini Natraj & John Van Reenen, 2010. "Has ICT Polarized Skill Demand? Evidence from Eleven Countries over 25 Years," CEP Discussion Papers dp0987, Centre for Economic Performance, LSE.
    7. repec:bla:jecsur:v:13:y:1999:i:2:p:119-47 is not listed on IDEAS
    8. Irwin, Douglas A. & Klenow, Peter J., 1996. "High-tech R&D subsidies Estimating the effects of Sematech," Journal of International Economics, Elsevier, vol. 40(3-4), pages 323-344, May.
    9. repec:cup:jfinqa:v:46:y:2011:i:06:p:1545-1580_00 is not listed on IDEAS
    10. Yongqiang Chu & Xuan Tian & Wenyu Wang, 2019. "Corporate Innovation Along the Supply Chain," Management Science, INFORMS, vol. 67(6), pages 2445-2466, June.
    11. Yanfeng Lou & Yezhuang Tian & Kai Wang, 2020. "The Spillover Effect of US Industrial Subsidies on China’s Exports," Sustainability, MDPI, vol. 12(7), pages 1-12, April.
    12. Kirill Borusyak & Xavier Jaravel & Jann Spiess, 2024. "Revisiting Event-Study Designs: Robust and Efficient Estimation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(6), pages 3253-3285.
    13. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    14. David H. Autor & David Dorn & Gordon H. Hanson, 2015. "Untangling Trade and Technology: Evidence from Local Labour Markets," Economic Journal, Royal Economic Society, vol. 0(584), pages 621-646, May.
    15. Gerd Schwartz & Benedict Clements, 1999. "Government Subsidies," Journal of Economic Surveys, Wiley Blackwell, vol. 13(2), pages 119-148, April.
    16. Sabrina T. Howell, 2017. "Financing Innovation: Evidence from R&D Grants," American Economic Review, American Economic Association, vol. 107(4), pages 1136-1164, April.
    17. Natarajan Balasubramanian & Jeongsik Lee, 2008. "Firm age and innovation," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 17(5), pages 1019-1047, October.
    18. Andrew Goodman-Bacon, 2018. "Public Insurance and Mortality: Evidence from Medicaid Implementation," Journal of Political Economy, University of Chicago Press, vol. 126(1), pages 216-262.
    19. Daniel A. Ackerberg & Kevin Caves & Garth Frazer, 2015. "Identification Properties of Recent Production Function Estimators," Econometrica, Econometric Society, vol. 83, pages 2411-2451, November.
    20. Defever, Fabrice & Riaño, Alejandro, 2017. "Subsidies with export share requirements in China," Journal of Development Economics, Elsevier, vol. 126(C), pages 33-51.
    21. Ayyagari, Meghana & Demirgüç-Kunt, Asli & Maksimovic, Vojislav, 2011. "Firm Innovation in Emerging Markets: The Role of Finance, Governance, and Competition," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(6), pages 1545-1580, December.
    22. Tang, Jianmin, 2006. "Competition and innovation behaviour," Research Policy, Elsevier, vol. 35(1), pages 68-82, February.
    23. Meriggi, Niccolò F. & Bulte, Erwin & Mobarak, Ahmed Mushfiq, 2021. "Subsidies for technology adoption: Experimental evidence from rural Cameroon," Journal of Development Economics, Elsevier, vol. 153(C).
    24. Blalock, Garrick & Veloso, Francisco M., 2007. "Imports, Productivity Growth, and Supply Chain Learning," World Development, Elsevier, vol. 35(7), pages 1134-1151, July.
    25. Myrto Kalouptsidi, 2018. "Detection and Impact of Industrial Subsidies: The Case of Chinese Shipbuilding," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(2), pages 1111-1158.
    26. Guy Michaels & Ashwini Natraj & John Van Reenen, 2014. "Has ICT Polarized Skill Demand? Evidence from Eleven Countries over Twenty-Five Years," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 60-77, March.
    27. Xu, Ronghua & Shen, Yuxin & Liu, Meng & Li, Lu & Xia, Xuehua & Luo, Kaixin, 2023. "Can government subsidies improve innovation performance? Evidence from Chinese listed companies," Economic Modelling, Elsevier, vol. 120(C).
    28. Liu, Dayong & Chen, Tong & Liu, Xiaoyang & Yu, Yongze, 2019. "Do more subsidies promote greater innovation? Evidence from the Chinese electronic manufacturing industry," Economic Modelling, Elsevier, vol. 80(C), pages 441-452.
    29. Jiafeng Chen & Jonathan Roth, 2024. "Logs with Zeros? Some Problems and Solutions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 139(2), pages 891-936.
    30. Liu, Qing & Lu, Ruosi & Lu, Yi & Luong, Tuan Anh, 2021. "Import competition and firm innovation: Evidence from China," Journal of Development Economics, Elsevier, vol. 151(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ruiyang Hu & Chen Yin & Zhijie Zheng & Sili Zhou, 2024. "Unlocking Innovation: The Impact of Free Trade Zones on Corporate Innovation in China," Working Papers 202414, University of Macau, Faculty of Business Administration.
    2. Yan, Xueling & Yu, Shule & Zheng, Xing, 2025. "Is government subsidy efficient? Evidence from SMEs' automation in China," China Economic Review, Elsevier, vol. 94(PB).
    3. Pascal L. Ghazalian & Ali Fakih, 2017. "R&D and Innovation in Food Processing Firms in Transition Countries," Journal of Agricultural Economics, Wiley Blackwell, vol. 68(2), pages 427-450, June.
    4. Sajid Anwar & Beibei Hu & Qiao Luan & Kai Wang, 2024. "Export controls and innovation performance: Unravelling the complex relationship between blacklisted Chinese firms and U.S. suppliers," The World Economy, Wiley Blackwell, vol. 47(7), pages 2995-3033, July.
    5. Chen, Yongmin & Jiang, Haiwei & Liang, Yousha & Pan, Shiyuan, 2022. "The impact of foreign direct investment on innovation: Evidence from patent filings and citations in China," Journal of Comparative Economics, Elsevier, vol. 50(4), pages 917-945.
    6. Feiyan Yang & Jiahui Ren & Junjie Yang & Yuchuan Zhang & Changyuan Xia, 2025. "Does property insurance promote corporate innovation? Evidence from China," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 50(1), pages 34-77, January.
    7. Branstetter, Lee G. & Li, Guangwei & Ren, Mengjia, 2023. "Picking winners? Government subsidies and firm productivity in China," Journal of Comparative Economics, Elsevier, vol. 51(4), pages 1186-1199.
    8. Leona Shao-Zhi Li & Yize Liu & Jia Yuan, 2024. "The effect of the U.S.–China trade war on Chinese corporate innovation: A curse or a blessing?," Working Papers 202418, University of Macau, Faculty of Business Administration.
    9. Liu, Shiyuan & Du, Jiang & Zhang, Weike & Tian, Xiaoli & Kou, Gang, 2021. "Innovation quantity or quality? The role of political connections," Emerging Markets Review, Elsevier, vol. 48(C).
    10. Kai Wu & Dingyao Guo, 2024. "From red tape to innovation: How does municipal government financing reform affect corporate R&D activities?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(4), pages 3387-3417, December.
    11. Yuan, Li & Rao, Siqi & Yang, Shenggang & Dai, Pengyi, 2023. "Does equity market openness increase productivity? the dual effects of Shanghai-Hong Kong stock Connect program in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 88(C).
    12. Qian, Yuan, 2025. "Supply chain spillover effects of corporate voluntary green behavior: A quasi-natural experiment from China," International Review of Economics & Finance, Elsevier, vol. 103(C).
    13. T. Gries & R. Grundmann & I. Palnau & M. Redlin, 2017. "Innovations, growth and participation in advanced economies - a review of major concepts and findings," International Economics and Economic Policy, Springer, vol. 14(2), pages 293-351, April.
    14. Vahagn Jerbashian, 2019. "Automation and Job Polarization: On the Decline of Middling Occupations in Europe," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 81(5), pages 1095-1116, October.
    15. Kong, Dongmin & Zhang, Bohui & Zhang, Jian, 2022. "Higher education and corporate innovation," Journal of Corporate Finance, Elsevier, vol. 72(C).
    16. Lionel Fontagné & Ariell Reshef & Gianluca Santoni & Giulio Vannelli, 2024. "Automation, global value chains and functional specialization," Review of International Economics, Wiley Blackwell, vol. 32(2), pages 662-691, May.
    17. Pantea, Smaranda & Sabadash, Anna & Biagi, Federico, 2017. "Are ICT displacing workers in the short run? Evidence from seven European countries," Information Economics and Policy, Elsevier, vol. 39(C), pages 36-44.
    18. Luo, Shiyue & Lu, Mingyue & Ye, Jinhui & Guo, Yuying & Hao, Yu, 2025. "Nurturing finance and harvesting intelligence: The green growth of urban industrial intelligence fueled by green finance," Research in International Business and Finance, Elsevier, vol. 80(C).
    19. Einiö, Elias, 2016. "The loss of production work: evidence from quasiexperimental identification of labour demand functions," LSE Research Online Documents on Economics 69019, London School of Economics and Political Science, LSE Library.
    20. Bergeaud, Antonin & Mazet-Sonilhac, Clément & Malgouyres, Clément & Signorelli, Sara, 2021. "Technological Change and Domestic Outsourcing," IZA Discussion Papers 14603, IZA Network @ LISER.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:chieco:v:92:y:2025:i:c:s1043951x25000835. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/chieco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.