NATIONAL BUREAU OF ECONOMIC RESEARCH
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Do Innovation Subsidies Make Chinese Firms More Innovative? Evidence from the China Employer Employee Survey

Hong Cheng, Hanbing Fan, Takeo Hoshi, Dezhuang Hu

NBER Working Paper No. 25432
Issued in January 2019, Revised in February 2019
NBER Program(s):The Corporate Finance Program, The Productivity, Innovation, and Entrepreneurship Program

The Chinese government has been using various subsidies to encourage innovations by Chinese firms. This paper examines the allocation and impacts of innovation subsidies, using the data from the China Employer Employee Survey (CEES). We find that the innovation subsidies are preferentially allocated to state owned firms and politically connected firms. Of these two (state ownership and political connection), political connection is more important in determining the allocation. We also find that the firms that receive innovation subsidies file and receive more patents, are more likely to introduce new products, but do not necessarily file and receive more patents abroad. Finally, the firms that receive innovation subsidies do not have higher productivity, more profits, or larger market shares. Overall, the results point to inefficiency of allocation of innovation subsidies and show that the subsidies encourage only incremental innovations and not radical ones.

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Document Object Identifier (DOI): 10.3386/w25432

 
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