Industrial policy, congruence, and innovation: Evidence from “Chinese NASDAQ”

Xiuping Hua, Yong Wang, Junjie Xia and Haochen Zhang

Research Policy, 2025, vol. 54, issue 8

Abstract: This paper investigates the association between firm innovation and endowment-based fundamental factors through the lens of congruence and then examines the impact of a national-level industrial policy on this newly established link. Based on a sample of small and innovative firms listed on the National Equities Exchange and Quotations, China's NASDAQ counterpart, we find that firms with greater congruence with local endowment structure tend to have more innovation inputs and outputs. Additionally, in a quasi-experimental setting, we further examine the effect of the “Made in China 2025” (MC2025) industrial policy. Our findings indicate that MC2025 increases bank loans for treated firms and weakens the positive association between congruence and firm innovation. This suggests that MC2025 has a dual impact: while it increases access to capital, it may also lead to capital misallocations and policy distortions, ultimately hindering long-term innovation capabilities.

Keywords: Congruence; Industrial policy; Innovation; R&D intensity; Patents (search for similar items in EconPapers)
JEL-codes: D80 G30 O30 R10 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:respol:v:54:y:2025:i:8:s0048733325001271

DOI: 10.1016/j.respol.2025.105298

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