Guiding for Promotion or “Icing on the Cake”: Reexamine Causal Relationship between China Government's Financial Subsidy and Enterprises' R&D Input

Abstract

Abstract:

Under current system environment in China, it is of both theoretical and policy significance to discuss the effect of government's direct financial subsidy on enterprises in order to promote technology innovation. There are no unified opinions about the effect in academic field based on international empirical researches. Also, opinions in previous researches in China vary from each other due to method difference and endogeneity. In recent years, the development of micro-econometric method contributes to a new possibility for us to systematically test the "causal inference". On the basis of Chinese industrial enterprises database, the PSM-DIM method is used in the thesis which, comparing with traditional panel regression, proves that financial subsidy has significant positive effect rather than the "crowding-out effect" on the subsequent innovation input of enterprises. Previous literatures adopted traditional regression method and proved that there is a "bidirectional promotion" relationship between the two parts, which is the R&D input of enterprises can in turn greatly help them to gain more subsidy income later. On the contrast, the thesis finds out the causal relationship features a strong unidirectionality, namely, the R&D behavior of enterprises can't greatly impact enterprises on obtaining follow-up subsidy income. That indicates that government's financial subsidy plays a guiding role in inspiring micro-enterprises to enlarge R&D input, rather than a "icing-on-the-cake" bonus nor the so-called crowding-out effect. In addition, it is found according to heterogeneity analysis that financial subsidy policy has a relatively stronger promotion effect on enlarging R&D input of private enterprises, enterprises in Eastern and Western China and non-high-tech enterprises.

Key words: financial subsidy, enterprise innovation, propensity score matching(PSM), difference-in-difference

Yao Dongmin, Zhu Yongyi. Guiding for Promotion or “Icing on the Cake”: Reexamine Causal Relationship between China Government's Financial Subsidy and Enterprises' R&D Input[J]. , 2019, 31(6): 77-90.

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