The Misuse of China’s R&D Subsidies: Estimating Treatment Effects With One-Sided Noncompliance

68 Pages Posted: 5 Dec 2024

See all articles by Philipp Boeing

Philipp Boeing

Goethe University Frankfurt - Faculty of Economics and Business Administration; ZEW – Leibniz Centre for European Economic Research

Bettina Peters

Center for European Economic Research (ZEW)

Date Written: November 01, 2024

Abstract

We investigate the misuse of R&D subsidies and evaluate its consequences for policy effectiveness. Developing a theoretical framework and using Chinese firm-level data for 2001-2011, we identify that 42% of grantees misappropriated R&D subsidies for non-R&D purposes, accounting for 53% of total R&D subsidies. Misuse leads to a substantial loss in the causal impact of R&D subsidies, as measured by the difference between the intention-to-treat and complier average causal effect. R&D expenditures could have been stimulated beyond the subsidy amount (additionality), but misuse (noncompliance) resulted in medium-level partial crowding out, reducing the effectiveness of China's R&D policy by more than half.

Keywords: R&D subsidies, policy evaluation, misuse, China

JEL Classification: O31, O38, C21, H21

Suggested Citation

Boeing, Philipp and Peters, Bettina, The Misuse of China’s R&D Subsidies: Estimating Treatment Effects With One-Sided Noncompliance (November 01, 2024). ZEW - Centre for European Economic Research Discussion Paper No. 24-077, Available at SSRN: https://ssrn.com/abstract=5045083 or http://dx.doi.org/10.2139/ssrn.5045083

Philipp Boeing (Contact Author)

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Campus Westend
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.philippboeing.com

ZEW – Leibniz Centre for European Economic Research ( email )

L7, 1
Mannheim, 68161
Germany

Bettina Peters

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany
+496211235174 (Phone)
+496211235170 (Fax)

HOME PAGE: http://www.zew.de

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