Government Subsidy Nexus: The Case of Employment and Performance Dynamics

Abstract

In this article, the impact of nexus of subsidy on economic growth and performance is examined, with focus on age influence. We analyse data from 1,272 Chinese manufacturing firms from 2007 to 2017 using quantile regressions and Generalized Method of Moments. The findings indicate that subsidies have a positive effect on employment growth but a negative impact on performance. Age is found to have a weaker moderating effect on the subsidy-performance relationship but a stronger effect on the subsidy-employment-growth relationship. Young and private firms experience alternating growth patterns, while state and matured firms consistently exhibit positive growth across all quantiles. The study also reveals that lagged employment and subsidy levels have a significant positive relationship with current employment-related issues, while performance shows a change in direction with lags. Our result shows that subsidy impacts better on growth rather than performance as a by-product. However, with limiting recommendations on governments efforts to overspend on young firms. We discuss our findings within the theoretical frameworks of the economics of subsidy and the theory of cost and benefit for emerging markets.