The effects of state ownership on innovation: evidence from the state-owned enterprises reform in China

Jinyong Zhan and Jingci Zhu

Applied Economics, 2021, vol. 53, issue 1, 145-163

Abstract: With the quasi-natural experiment of state-owned enterprises reform in China, this paper analyzes the relationship between state ownership and innovation. Utilizing difference-in-differences method, this paper estimates the effects of privatization on innovation in terms of R&D expenditure (innovation input), the number of patents, patents for invention (innovation output) and expenditure per patent (innovation efficiency) with Annual Survey of Industrial Enterprises in China over the period of 1998 and 2007. This paper finds that the privatization of state ownership does not significantly raise the R&D expenditure but does increase the innovation output by 2.5% as well as innovation efficiency by 50%. The results are robust to controlling for other types of ownership change and the industry-time disturbances. We also find that state ownership mainly influences firm innovation performance through the channels of increasing wages and financial constraints.

Date: 2021
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DOI: 10.1080/00036846.2020.1796918

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