Do Innovation Subsidies Make Chinese Firms More Innovative? Evidence from the China Employer Employee Survey

49 Pages Posted: 15 Jan 2019 Last revised: 29 Jun 2022

See all articles by Hong Cheng

Hong Cheng

Wuhan University

Hanbing Fan

Wuhan University

Takeo Hoshi

University of California at San Diego; National Bureau of Economic Research (NBER)

Dezhuang Hu

Wuhan University

Date Written: January 2019

Abstract

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.

Suggested Citation

Cheng, Hong and Fan, Hanbing and Hoshi, Takeo and Hu, Dezhuang, Do Innovation Subsidies Make Chinese Firms More Innovative? Evidence from the China Employer Employee Survey (January 2019). NBER Working Paper No. w25432, Available at SSRN: https://ssrn.com/abstract=3315236

Hong Cheng (Contact Author)

Wuhan University ( email )

Wuhan
China

Hanbing Fan

Wuhan University

Wuhan
China

Takeo Hoshi

University of California at San Diego ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States
619-534-5018 (Phone)
619-534-3939 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Dezhuang Hu

Wuhan University

Wuhan
China

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