Picking Winners? Government Subsidies and Firm Productivity in China

Lee Branstetter, Guangwei Li and Mengjia Ren

No 30699, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Are Chinese industrial policies making the targeted Chinese firms more productive? Alternatively, are efforts to promote productivity undercut by efforts to maintain or expand employment in less productive enterprises? In this paper, we attempt to shed light on these questions through the analysis of previously underutilized microdata on direct government subsidies provided to China’s publicly traded firms. We categorize subsidies into different types. We then estimate total-factor productivity (TFP) for Chinese listed firms and investigate the relationship between these estimates of TFP and the allocation of government subsidies. We find little evidence that the Chinese government consistently “picks winners”. Firms’ ex-ante productivity is negatively correlated with subsidies received by firms, and subsidies appear to have a negative impact on firms’ ex-post productivity growth throughout our data window, 2007 to 2018. Neither subsidies given out under the name of R&D and innovation promotion nor industrial and equipment upgrading positively affect firms’ productivity growth. On the other hand, we find a positive impact of subsidy on current year employment, both for the aggregated and employment-related subsidies. These findings suggest that China’s increasingly prescriptive industrial policies may have generated limited effects in promoting productivity.

JEL-codes: O25 O32 (search for similar items in EconPapers)
Date: 2022-12
New Economics Papers: this item is included in nep-bec, nep-cna, nep-eff, nep-sbm and nep-tid
Note: PR
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Citations: View citations in EconPapers (5)

Published as Lee G. Branstetter & Guangwei Li & Mengjia Ren, 2023. "Picking winners? Government subsidies and firm productivity in China," Journal of Comparative Economics, .

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