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Spillovers of innovation subsidies on regional industry growth: Evidence from China

Yan Guo and Haochen Zhang

Economic Modelling, 2022, vol. 112, issue C

Abstract: Spillover is an important channel through which government innovation policies boost economic growth. Despite various firm-level analyses on the effectiveness of innovation subsidies, industry-level spillovers of such subsidies and determinants of their strength are not well-studied. Based on the sample of all the subsidized manufacturing and service industries in the Innovation Fund for Small and Medium Technology-based Firms (Innofund) program from 1999 to 2014, we examine the spillover effects of innovation subsidies and explore rich heterogeneities across regions and industries. We find significantly positive spillover effects of the innovation subsidies on the subsidized industries and their upstream and downstream industries regarding the firm number, employment and output growth. Furthermore, we find large vertical spillovers of subsidies from high-tech service sectors to manufacturing sectors for the first time. The spillovers work through market linkages, strengthened by marketization, decentralized governance, and interactions between different techno-industrial policies.

Keywords: Innovation subsidy; Market spillover; Vertical linkages; Economic growth; Governance (search for similar items in EconPapers)
JEL-codes: G28 L52 O38 R11 R58 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.econmod.2022.105869

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