Who Benefits from Deregulation Reforms? Heterogeneous Impacts on Innovation by Seed Firm Size

Governments worldwide have been increasingly focused on how to foster innovation through regulatory frameworks, particularly in developing countries. In 2016, China revised the "Seed Law," marked a shift from a control-based to a market-oriented framework. This study uses a difference-in-differences strategy to examine the impact of deregulation reform on firms' innovation in China's seed industry from 2013 to 2021. The results reveal a significant positive effect on innovation. We also found that the reform had a significantly greater impact on innovation quantity for larger firms compared to smaller ones, with results remaining robust across extensive checks. Mechanism analysis suggests that for large firms, the increase in approved varieties is driven by both short-term factors such as expanded approval channels and technology licensing, and long-term R&D investments. In contrast, for small firms, it primarily stems from short-term factors, with limited impact from long-term R&D efforts. Additionally, the reform increased innovation quantity without compromising quality for smaller firms, while further enhancing innovation quality among larger firms.