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Can government subsidy strategies and strategy combinations effectively stimulate enterprise innovation? Theory and evidence

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Abstract

This paper tries to disentangle between the effects of non-R&D and R&D subsidies, and explores the mechanism of different subsidies and their combination on R&D investment and innovation output of listed enterprises in China by combining theory with empirical research. Based on the unbalanced panel data of 2707 Chinese listed enterprises from the year 2008 to 2015, this study confirms that both R&D subsidy and non-R&D subsidy have an incentive effect on the R&D investment, but the former is more effective than the latter. When R&D subsidy is at a high level, there is a positive relation between government non-R&D subsidies and enterprise R&D investment; sufficient non-R&D subsidies can effectively strengthen the incentive effect of R&D subsidies on R&D investment of enterprises. Furthermore, R&D subsidy can promote the innovation output of enterprises through direct and indirect paths, whereas, non-R&D subsidy or subsidy policy-mix has a certain “masking effect” on the innovation output.

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Notes

  1. Taking 2017 (year) as an example, among all the 3421 listed enterprises in China, 3318 enterprises receive the government subsidies.

  2. Tax incentives provide facilities to alleviate the taxation enterprises’ debt and can operate as an incentive to foster their innovative behavior.

  3. Guarantee funds constitute a type of policy instrument aimed at small businesses to operate as hedge funds for the percentage of losses of organizations of the financial system, that agree to place credits at competitive rates for producers.

  4. Intellectual property refers to the enterprises’ exclusion rights of other competitors from their innovations, allowing them to capture the benefits of their innovative effort.

  5. Government procurement is the procurement of goods, services and works on behalf of a public authority, such as a government agency. The large buying power of the public sector has led to the consideration of using public procurement as a stimulus to foster innovation.

  6. Crowd-in effect refers to the fact that enterprises increase their self-raised funds for R&D while using all government subsidies for innovation activities.

  7. Crowd-out effect means that the government's subsidy funds partially or completely replace the enterprise's self-raised R&D input expenditure.

  8. \(\frac{{\partial x^{XQ} }}{{\partial Sub_{X} }} = \frac{1}{{\left( {1 - k} \right)\left( {\omega - Sub_{X} } \right)}} \cdot \left[ {\frac{{4k\left( {a - c_{high} + 2Sub_{Q} } \right)\left( {c_{high} - c_{low} } \right)}}{{9\left( {\omega - Sub_{X} } \right)}}} \right]^{{\frac{1}{1 - k}}} > 0\);

    \(\frac{{\partial x^{XQ} }}{{\partial Sub_{Q} }} = \frac{{2^{{\frac{3 - k}{{1 - k}}}} }}{{\left( {1 - k} \right)\left( {a - c_{high} + 2Sub_{Q} } \right)}} \cdot \left[ {\frac{{4k\left( {a - c_{high} + 2Sub_{Q} } \right)\left( {c_{high} - c_{low} } \right)}}{{9\left( {\omega - Sub_{X} } \right)}}} \right]^{{\frac{1}{1 - k}}} > 0\);

    \(\frac{{\partial^{2} x^{XQ} }}{{\partial Sub_{X} \partial Sub_{Q} }} = \frac{{2^{{\frac{3 - k}{{1 - k}}}} }}{{\left( {1 - k} \right)^{2} \left( {\omega - Sub_{X} } \right)\left( {a - c_{high} + 2Sub_{Q} } \right)}} \cdot \left[ {\frac{{4k\left( {a - c_{high} + 2Sub_{Q} } \right)\left( {c_{high} - c_{low} } \right)}}{{9\left( {\omega - Sub_{X} } \right)}}} \right]^{{\frac{1}{1 - k}}} > 0\)

  9. The direct and indirect effects of government subsidies on innovation output of listed enterprises are in opposite directions, and the two effects offset each other, which leads to the insignificant effect of subsidies on innovation output.

  10. In the following analysis, we employ the fixed-effect panel threshold model to explore how the combination of the two types of subsidies can effectively promote enterprise R&D investment and innovation. It is shown that non-R&D subsidy can significantly encourage listed enterprises to increase R&D investment when R&D subsidy is at a high level. This explains from another angle why the estimated value of non-R&D subsidy in Table 4 is far less than the estimated value of R&D subsidy.

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Funding

This study is supported by the Special fund project of “Research on overseas Chinese” of Huaqiao University (Grant no. HQHRYB2018-05) and the National Natural Science Foundation of China (Grant no. 51908229) and the Natural Science Foundation of Fujian Province (Grant no. 2019J01063) and the Science and Technology Innovation Funding Program for Middle Aged and Young Teachers of Huaqiao University (ZQN-816).

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Authors and Affiliations

  1. School of Architecture, Huaqiao University, Xiamen, China

    Wanshu Wu

  2. Institute of Quantitative Economics, Huaqiao University, 668, Avenue JiMei, Xiamen, 361021, China

    Kai Zhao

  3. School of Statistics, Huaqiao University, Xiamen, China

    Lei Li

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  1. Wanshu Wu
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Correspondence to Kai Zhao.

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Appendix

Appendix

See Table 8.

Table 8 Bivariate correlations
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Wu, W., Zhao, K. & Li, L. Can government subsidy strategies and strategy combinations effectively stimulate enterprise innovation? Theory and evidence. Econ Polit 38, 423–446 (2021). https://doi.org/10.1007/s40888-021-00230-y

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