Industrial Promotion and Corporate Innovation: A Study Based on China’s Five-Year Plans

Bo Li and Qianling Xie
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Bo Li: School of Economics, Yunnan University, Kunming, China
Qianling Xie: School of Economics, Yunnan University, Kunming, China

Review of Economic Assessment, 2024, vol. 3, issue 2, 35-55

Abstract: Industrial policy is the government’s guidance and intervention in industrial development to achieve economic and social goals, and it seeks to steer the direction of industrial development, facilitate industrial structure upgrades, and improve social welfare. Based on panel data on 31 provinces in China from 2011 to 2022, this study examines the effects of industrial promotion from China’s Five-Year Plans on corporate innovation performance using a difference-in-differences (DID) model. The study findings indicate that industrial promotion from China’s Five-Year Plans promotes corporate innovation performance, and the basic conclusion remains robust when changing how firms’ innovation is measured, removing provincial policy interference, excluding the four municipalities in China, and utilizing the PSM-DID model. Moreover, this paper explores how industrial promotion influences firms’ innovation performance. The mechanism analysis reveals that industrial promotion from China’s Five-Year Plans encourages firms’ innovation through tax incentives, government subsidies, and credit support. In addition, heterogeneity tests find that industrial promotion has a more significant effect on corporate innovation among small-scale firms and firms operating in highly competitive industries and regions characterized by high marketization. The empirical findings presented provide evidence for enhancing corporate innovation performance through industry promotion in China’s Five-Year Plans and offer insights that can refine the formulation of Five-Year Plans.

Keywords: Industrial Policy; Industrial Promotion; Five-Year Plan; Corporate Innovation Performance; Difference-in-Differences Model (search for similar items in EconPapers)
Date: 2024
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