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Government-subsidized R&D and firm innovation: Evidence from China

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  • Guo, Di
  • Guo, Yan
  • Jiang, Kun

Abstract

This study investigates the effects of government R&D programs on firm innovation outputs, which are measured by the number of patents, sales from new products, and exports. Particularly, we examine the effects of Innovation Fund for Small and Medium Technology-based Firms (Innofund), which is one of the largest government R&D programs that support R&D activities of small and medium-sized enterprises in China. Using a panel dataset on Chinese manufacturing firms from 1998 to 2007, we find that Innofund-backed firms generate significantly higher technological and commercialized innovation outputs compared with their non-Innofund-backed counterparts and the same firms before winning the grant. Moreover, the changes in the governance of Innofund in 2005 from a centralized to a decentralized one because of policy amendments have significant effects on the effectiveness of the program. Specifically, the magnified effects of Innofund on technological innovation outputs become significantly stronger after the governance of Innofund becomes more decentralized. Identification problems are addressed by utilizing both propensity score matching and two-stage estimation approaches.

Suggested Citation

  • Guo, Di & Guo, Yan & Jiang, Kun, 2016. "Government-subsidized R&D and firm innovation: Evidence from China," Research Policy, Elsevier, vol. 45(6), pages 1129-1144.
  • Handle: RePEc:eee:respol:v:45:y:2016:i:6:p:1129-1144
    DOI: 10.1016/j.respol.2016.03.002
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    5. Liu, Rebecca & Rammer, Christian, 2016. "The contribution of different public innovation funding programs to SMEs' export performance," ZEW Discussion Papers 16-078, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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    More about this item

    Keywords

    Government R&D program; Governance; Innovation; China;

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories

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