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Does the industrial internet enhance firm innovation? Evidence from China’s pilot reform

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  • Zuo, Xiaoming
  • Liu, Huaijie
  • Sun, Peng

Abstract

This study examines whether China’s Industrial Internet pilot policy (2017–2023) enhances firm innovation and explores the underlying mechanisms. Exploiting the staggered rollout of the policy across provinces as a quasi-natural experiment, we find that Industrial Internet adoption significantly increases firms’ innovation output. Mechanism tests show that the policy promotes knowledge accumulation, strengthens innovation persistence, and improves human capital allocation. We also document positive economic consequences, as treated firms earn higher returns to innovation. The effects are stronger for capital-intensive firms, those located in regions with advanced digital infrastructure, and firms undertaking joint or substantive innovation activities. Overall, the evidence highlights the Industrial Internet as an effective catalyst for firm innovation by deepening R&D capability and facilitating cross-industry knowledge flows.

Suggested Citation

  • Zuo, Xiaoming & Liu, Huaijie & Sun, Peng, 2026. "Does the industrial internet enhance firm innovation? Evidence from China’s pilot reform," Finance Research Letters, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:finlet:v:88:y:2026:i:c:s1544612325026017
    DOI: 10.1016/j.frl.2025.109352
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    Keywords

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    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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