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Is government subsidy efficient? Evidence from SMEs' automation in China

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  • Yan, Xueling
  • Yu, Shule
  • Zheng, Xing

Abstract

This study examines the impact of government subsidies on the automation decisions of small and medium-sized enterprises (SMEs) in China. We introduce a theoretical model to analyze how financing constraints affect the net benefits of automation and how subsidies allocated to SMEs with heterogeneous financing conditions can produce varying economic outcomes. Using data from the Enterprise Survey for Innovation and Entrepreneurship in China (ESIEC), we find that: 1) government subsidies significantly enhance automation adoption among SMEs; 2) this effect is primarily driven by the alleviation of financing constraints; and 3) however, subsidies directed towards SMEs with lower endowments may lead to inefficiencies. Our findings highlight the importance of subsidies in promoting technological advancements for financially constrained SMEs, especially in developing economies like China.

Suggested Citation

  • Yan, Xueling & Yu, Shule & Zheng, Xing, 2025. "Is government subsidy efficient? Evidence from SMEs' automation in China," China Economic Review, Elsevier, vol. 94(PB).
    • Handle: RePEc:eee:chieco:v:94:y:2025:i:pb:s1043951x2500224x
    DOI: 10.1016/j.chieco.2025.102566
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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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