Does Administrative Approval Impede Low-Quality Innovation? Evidence from Chinese Manufacturing Firms

Haiwei Jiang, Shiyuan Pan and Xiaomeng Ren
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Haiwei Jiang: School of Economics, Zhejiang University, Hangzhou 310027, China
Shiyuan Pan: School of Economics, Zhejiang University, Hangzhou 310027, China
Xiaomeng Ren: China Academy of West Region Development, Zhejiang University, Hangzhou 310058, China

Sustainability, 2020, vol. 12, issue 5, 1-22

Abstract: Sustainable economic development is tightly connected to substantial innovation which can be improved by reducing low-quality innovation. This paper constructs a theoretical framework to present the ultimate relationship between administrative approval and sustainability. In order to verify the research hypotheses, we define the dormant patents whose patent rights are terminated due to non-payment of renewal fees to measure the low-quality innovation of Chinese manufacturing firms. By using the merged firm-level data between 1998 and 2007 and collected information on whether a city establishes the administrative approval center (AAC), and employing a difference-in-difference (DID) approach, we identify the impacts of administrative approval and firms’ low-quality innovation. First, the results reveal that administrative approval reduces the firms’ low-quality innovation. Second, administrative approval has a smaller impact on the low-quality innovation for state-owned enterprises (SOE). Third, three mechanisms are uncovered through which administrative approval impedes low-quality innovation: enhancing market competition, changing the direction of innovation, and optimizing research and development (R&D) investment strategy.

Keywords: administrative approval; low-quality innovation; dormant patents; sustainable economic development (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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