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Does innovation policy promote innovation? Evidence from innovation targets in China's five-year plans

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  • Wang, Xianbin
  • Zheng, Xitian
  • Cao, Dan

Abstract

Understanding how governments foster innovation remains a central issue in economic development. This paper investigates China's innovation-target-setting policy in prefecture-level cities' Five-Year Plans and its role in regional innovation. Using a difference-in-differences framework, we find robust evidence that target setting significantly increases invention patent applications. The effect operates mainly through higher fiscal expenditure on science and technology and greater public procurement of innovative products. The impact is particularly strong in cities facing greater economic growth target pressure, indicating that innovation and growth targets are complementary rather than conflicting. Further analysis shows that innovation targets improve patent quality, encourage collaborative research and development, and promote intercity knowledge spillovers. At the industry and firm levels, they stimulate innovation in leading and strategic emerging sectors and support the growth of gazelle, unicorn, and high-tech enterprises. Overall, institutionalized, target-driven policies can mobilize local governments to address market failures and advance innovation-led growth.

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  • Wang, Xianbin & Zheng, Xitian & Cao, Dan, 2026. "Does innovation policy promote innovation? Evidence from innovation targets in China's five-year plans," Economic Modelling, Elsevier, vol. 155(C).
    • Handle: RePEc:eee:ecmode:v:155:y:2026:i:c:s0264999325003967
    DOI: 10.1016/j.econmod.2025.107401
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    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
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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