Soft budget constraints and technological innovations: evidence from China

Yuping Cao and Xiaojin Sun ()
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Yuping Cao: Henan University
Xiaojin Sun: Oklahoma State University

Public Choice, 2025, vol. 202, issue 1, No 6, 109-139

Abstract: Abstract Technological innovations are heterogeneous in nature; some are pioneering while others are not. Drawing on a series of theoretical studies, this paper offers empirical evidence on the differential effects of soft budget constraints on non-pioneering and pioneering innovations by using provincial-level data from China spanning from 2003 to 2015. Using a panel threshold model framework, we observe that soft budget constraints stimulate non-pioneering innovations but hinder pioneering innovations, with the hindering effects outweighing the stimulating effects. These findings underscore the importance of overcoming institutional path dependence and hardening budget constraints to foster the dynamic evolution of innovation modes.

Keywords: Soft budget constraints; Technological innovations; Screening mechanisms; Panel threshold model (search for similar items in EconPapers)
JEL-codes: H61 O31 O38 P51 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11127-024-01177-x

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