Gains from targeting? Government subsidies and firm performance in China

Jiuli Huang, Yabin Wang and Min Zhu

No 2025-05, Discussion Papers from University of Nottingham, GEP

Abstract: This paper studies the firm-level impact of the world’s largest targeted capital import subsidy program implemented in China. Drawing on rich manufacturing firm survey data, product-level trade transactions, and a comprehensive list of capital goods eligible for subsidies, we exploit variation in firms’ exposure to the subsidy program to assess its impact on credit access, investment, sales, and trade. We find that a one-standard-deviation increase in a firm’s exposure to the subsidy leads to a 0.03% increase in total borrowing and a 0.05% reduction in financing costs. These financial benefits translate into substantial real effects, including a 0.15% rise in investment and a 1.39% improvement in the marginal revenue product of capital. The program’s benefits persist over time and are especially pronounced for financially constrained firms and non-state enterprises, indicating that targeted import subsidies can effectively alleviate market frictions and foster industrial development.

Keywords: Government subsidy; credit allocation; investment; financial constraint (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-cfn and nep-cna
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.nottingham.ac.uk/gep/documents/papers/2025/25-05.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:not:notgep:2025-05

Access Statistics for this paper

More papers in Discussion Papers from University of Nottingham, GEP School of Economics University of Nottingham University Park Nottingham NG7 2RD. Contact information at EDIRC.
Bibliographic data for series maintained by Hilary Hughes ().