Do high administrative‐level cities promote firm technological innovation? A novel analysis based on patent applications

Abstract

This paper examines the impact of China's administrative hierarchy of cities on firm innovation through the incentive policies that mobilize local governments to promote firm innovation. Using difference‐in‐differences approach, this paper finds that high‐level cities significantly and robustly enhance the number of firm patents. The results also suggest that alleviating firm financing constraints and leveraging human capital advantages are important mechanisms. In addition, high‐level cities mainly facilitate non‐state enterprises and small firms, and the quality of utility model patents was significantly lower and the quality of invention patents was higher in high‐level cities. This paper also presents several policy implications.