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Decentralization and firm innovation: Evidence from a natural experiment in China

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  • Liu, Shasha
  • Ji, Mianmian
  • Wang, Huijuan

Abstract

This paper examines the impact of decentralization on firm innovations based on a unique setting in China, the delegation of approval authority for export tax rebate in 2006. Using difference-in-differences approach, we find that 1) export enterprises generate more patents, after the municipal taxation bureaus delegated the authority of export tax rebate approval to lower governments. 2) Placebo tests by falsifying the pilot time and cities establish the causality. 3) The effect is particularly more pronounced for export enterprises with higher financial constraints, higher information asymmetry and weaker relationship with local governments. Overall, this study provides new insight about the real effect of the decentralization of government activities on firm innovations, which may be of interest to regulators who are concerned with the authority delegation and simplification of administrative procedures.

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  • Liu, Shasha & Ji, Mianmian & Wang, Huijuan, 2021. "Decentralization and firm innovation: Evidence from a natural experiment in China," Economic Modelling, Elsevier, vol. 94(C), pages 501-512.
    • Handle: RePEc:eee:ecmode:v:94:y:2021:i:c:p:501-512
    DOI: 10.1016/j.econmod.2020.02.028
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    Cited by:

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    2. Li, Lei & Luo, Changtuo, 2023. "Does administrative decentralization promote outward foreign direct investment and productivity? Evidence from China," Economic Modelling, Elsevier, vol. 124(C).
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    4. Guo, Yan & Zhang, Haochen, 2022. "Spillovers of innovation subsidies on regional industry growth: Evidence from China," Economic Modelling, Elsevier, vol. 112(C).
    5. Gao, Ming & Gu, Qiankun & He, Shijun, 2022. "Place-based policies, administrative hierarchy, and city growth: Evidence from China," Economic Modelling, Elsevier, vol. 115(C).
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    More about this item

    Keywords

    Decentralization; Firm innovation; Export tax rebate approval; Financial constraints; Government connections;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • 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

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