Do more subsidies promote greater innovation? Evidence from the Chinese electronic manufacturing industry

Dayong Liu, Tong Chen, Xiaoyang Liu and Yongze Yu

Economic Modelling, 2019, vol. 80, issue C, 441-452

Abstract: Existing research provides contradictory insights about the effect of government subsidies on enterprise technology innovation. By explaining this mechanism with resource allocation, information efficiency and risk control channels, we systematically suggest three effects, leading to an inverted U-shaped relationship between the amount of subsidies and four indicators of technology innovation. Empirical evidence based on dataset of Chinese electronic manufacturing industry confirms that subsidies can promote enterprise technology innovation but it will inhibit innovation when there are too much or excessive amount of subsidies. Meanwhile, the impact of subsidies is more significant for non-state-owned enterprises than state-owned ones. Furthermore, the level of regional economic development moderates the impact of government subsidies. The government can take advantage of diverse subsidy policies to drive sustainable technology innovation.

Keywords: Technology innovation; Government subsidy; Resource allocation; Information efficiency; Ownership; Electronic manufacturing industry (search for similar items in EconPapers)
JEL-codes: O31 O34 O38 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (46)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:80:y:2019:i:c:p:441-452

DOI: 10.1016/j.econmod.2018.11.027

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