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Soft budget constraints and technological innovations: evidence from China

Author

Listed:
  • Yuping Cao

    (Henan University)

  • Xiaojin Sun

    (Oklahoma State University)

Abstract

Technological innovations are heterogeneous in nature; some are pioneering while others are not. Drawing on a series of theoretical studies, this paper offers empirical evidence on the differential effects of soft budget constraints on non-pioneering and pioneering innovations by using provincial-level data from China spanning from 2003 to 2015. Using a panel threshold model framework, we observe that soft budget constraints stimulate non-pioneering innovations but hinder pioneering innovations, with the hindering effects outweighing the stimulating effects. These findings underscore the importance of overcoming institutional path dependence and hardening budget constraints to foster the dynamic evolution of innovation modes.

Suggested Citation

  • Yuping Cao & Xiaojin Sun, 2025. "Soft budget constraints and technological innovations: evidence from China," Public Choice, Springer, vol. 202(1), pages 109-139, January.
    • Handle: RePEc:kap:pubcho:v:202:y:2025:i:1:d:10.1007_s11127-024-01177-x
    DOI: 10.1007/s11127-024-01177-x
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    More about this item

    Keywords

    Soft budget constraints; Technological innovations; Screening mechanisms; Panel threshold model;
    All these keywords.

    JEL classification:

    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • 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
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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