Do China's special economic zones increase incentives to invest in R&D?

Katrin Hussinger and Lorenzo Palladini

No 25-028, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: China's special economic zones (SEZs) have been established to foster business growth and innovation by improving the institutional context of specific sub-regional areas. We examine the effect of SEZs on the contribution of research and development (R&D) to the market value of firms located in these areas. The market value reflects investors' expectations of future returns to R&D, providing crucial information for strategic investment decisions. Larger R&D contributions to the market value create stronger incentives for firms to invest in innovation. Empirical results suggest that the contribution of R&D to the market value increases through the SEZs program, particularly for R&D intensive firms. This suggests that regional policies, while increasing incentives to innovate, may widen the gap between less and more R&D intensive firms, potentially impacting competition and long-term growth.

Keywords: Special economic zones (SEZs); China; Market value; R&D; Institutional development; Innovation incentives (search for similar items in EconPapers)
JEL-codes: O25 O32 R58 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:319898

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