Will the Weakening of Subsidized Government Support Diminish the Technological Innovation Output of New Energy Vehicle Companies? Empirical Evidence from China

Abstract

Technological innovation stands as a pivotal catalyst for the advancement of the new energy vehicle industry. To incentivize independent innovation within new energy vehicle companies, the Chinese government declared the cessation of all subsidies to these entities in 2023. To date, the theoretical and practical ramifications of this policy remain unverified. This empirical research constitutes one of the pioneering inquiries into the repercussions of reduced governmental subsidies on the technological innovation endeavors of new energy vehicle enterprises. Employing a time-varying Differences-in-Differences (DID) model, data spanning from 2010 to 2021, sourced from A-share listed Chinese new energy vehicle companies, is scrutinized. Primarily, this study discerns that the reduction of subsidies by the Chinese government stimulates autonomous technological innovation within new energy vehicle firms. Additionally, results from heterogeneity tests reveal that this policy exerts a more pronounced impact on the technological innovation of state-owned firms compared to their private counterparts. Furthermore, it is established that the positive impetus is more prominent in larger firms. This study transcends prior research efforts by shifting the focus from the mere necessity of government subsidies to the actual consequences of subsidy reduction, thereby offering substantial support for the rationale behind weakening government subsidies.

Keywords: subsidized government support, new energy vehicle, Technological innovation, time-varying DID model