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Selective Industrial Policy and Innovation Efficiency in Chinese Listed Companies

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  • Xiulu Huang
  • Rui Zhu

Abstract

For a long time, selective industrial policy has been widely used by governments around the world as a key tool for economic intervention. But how do these policies affect corporate innovation efficiency? This paper examines the Ten Industry Revitalisation Plan (TIRP), an emergency policy response by the Chinese government to the global economic downturn of 2008, treating it as an exogenous shock. The empirical analysis shows that the TIRP significantly reduced innovation efficiency, with this effect proving persistent even after the policy period ended. Mechanism analysis reveals that the policy decreased treated firm innovation efficiency by increasing government subsidies, impairing investment efficiency and exacerbating capital misallocation. Further investigation indicates that the TIRP has a stronger pushing‐up effect on the innovative capital input of firms state‐owned and firms with low productivity and diverts innovation resources to less productive or innovative firms, yielding nonachievement of the expected innovation outcomes. This study concludes that selective industrial policy poses a significant barrier to improving innovation efficiency, offering valuable insights for enhancing economic innovation performance.

Suggested Citation

  • Xiulu Huang & Rui Zhu, 2026. "Selective Industrial Policy and Innovation Efficiency in Chinese Listed Companies," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 34(1), pages 117-136, January.
    • Handle: RePEc:wly:ectrin:v:34:y:2026:i:1:p:117-136
    DOI: 10.1111/ecot.70004
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