Government-subsidized R&D and firm innovation: Evidence from China

Abstract

This study investigates the effects of government R&D programs on firm innovation outputs, which are measured by the number of patents, sales from new products, and exports. Particularly, we examine the effects of Innovation Fund for Small and Medium Technology-based Firms (Innofund), which is one of the largest government R&D programs that support R&D activities of small and medium-sized enterprises in China. Using a panel dataset on Chinese manufacturing firms from 1998 to 2007, we find that Innofund-backed firms generate significantly higher technological and commercialized innovation outputs compared with their nonInnofund-backed counterparts and the same firms before winning the grant. Moreover, the changes in the governance of Innofund in 2005 from a centralized to a decentralized one because of policy amendments have significant effects on the effectiveness of the program. Specifically, the magnified effects of Innofund on technological innovation outputs become significantly stronger after the governance of Innofund becomes more decentralized. Identification problems are addressed by utilizing both propensity score matching and two-stage estimation approaches.

On the duality of political and economic stakeholder influence on firm innovation performance: Theory and evidence from Chinese firms

“…First, firms affiliated with higher levels of governments are under greater pressure to innovate in order to fulfill governments’ innovation objectives. Like those in many other countries, higher‐level governments in China (e.g., the central government) aim to transform the country into an innovation‐driven economy and view firm innovations as an important means to achieve such objectives (Guan & Yam, ; Guo, Guo, & Jiang, ). As a result, higher‐level governments set up more influential science and technology programs through which they provide financial and human resources to support firms that follow the government's innovation priorities (P. Fan & Watanabe, ; Z. Li & Li, ).…”

Measurement on the Complexity Entropy of Dynamic Game Models for Innovative Enterprises under Two Kinds of Government Subsidies

“…By analyzing the influence of the decision parameters on the stability of the system, we can conclude that the firms should not take an overlarge adjustment parameter when making innovation output decisions, otherwise the system will fall into an unstable state with high entropy and have an adverse impact on the firms' correctly making decisions and their profits. We further set a = 8, b = 2, c 1 = 0.5, c 2 = 0.6, θ = 0.6, λ = 1 and get the 3-D stability region of the system with change of α, β, ω in Figure 7 according to Jury stability criterion which is given in Equation (13). We can find that, as the government innovation subsidy rate ω increases, the stability region increases in the area of the α − β plane.…”

“…We further set = 8, = 2, = 0.5, = 0.6, = 0.6, = 1 and get the 3-D stability region of the system with change of , , ω in Figure 7 according to Jury stability criterion which is given in Equation (13). We can find that, as the government innovation subsidy rate increases, the stability region increases in the area of the − plane.…”

“…Kang and Park [12] studied the South Korean biotech industry, where they found that government R&D subsidies and the cooperative relations between enterprises and research institutions both have positive impacts on enterprises' innovation activities. Guo et al [13] studied the effects of innovation funds on small and medium technology-based firms. Hinloopen [14,15] compared two kinds of policies in promoting R&D activity.…”

Efficiency of Government-Sponsored R&D Projects: A Metafrontier DEA Approach

“…Since R&D generally involves market failure, government funding could increase R&D activities and move them closer to the social optimum [1]. In addition, R&D intensity and subsidies have positive correlations with the probability of innovation [2], and government-sponsored R&D creates additional innovations for beneficiaries [3][4][5]. Thus, government grants that encourage private R&D activities are common in many OECD countries [6].…”