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Political Uncertainty and Innovation in China

Xunan Feng and Anders Johansson ()
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Xunan Feng: Southwestern University of Finance and Economics

No 2017-44, Stockholm School of Economics Asia Working Paper Series from Stockholm School of Economics, Stockholm China Economic Research Institute

Abstract: We hypothesize that political uncertainty has an adverse effect on investments in activities related to innovation. Combining two hand-collected data sets on changes in local government officials and research and development (R&D) activity at the firm level in China, we examine how political turnover influences investments in R&D. We find that a change in local political leaders is associated with a significant decrease in R&D activity. This result is robust to various robustness tests. The decrease is larger when the new political leader is promoted from outside the city in question. Moreover, the decrease is significantly larger for privately controlled firms, firms operating in regions characterized by weak economic institutions, and firms within R&D-intensive industries. Our findings suggest that political uncertainty constitutes an important channel through which the local political process influences activities related to innovation.

Keywords: Innovation; R&D expenditures; Political turnover; Political uncertainty; Local officials; China (search for similar items in EconPapers)
JEL-codes: G18 G32 G38 O30 O31 O32 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2017-11-15
New Economics Papers: this item is included in nep-cna, nep-ino, nep-pol, nep-tra and nep-ure
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