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The impact of technology identification policy on firm innovation: Evidence from China

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  • Fang, Hongsheng
  • Wu, Xiao
  • Shen, Jim Huangnan
  • Zhao, Lexin

Abstract

Using firm-level data of companies listed on China's A-share market from 2006 to 2017, this research applies a difference-in-differences (DID) empirical method to test whether the state policy in China used for identifying firms as being “high-tech” enhances their innovative capabilities. This paper presents three main findings. First, multiple robustness tests confirm that the state technology identification policy does improve the total number of patent applications as well as the number of patent invention applications. Second, government subsidy is an important channel through which this policy affects a firm's innovation capabilities. Third, this policy has a more prominent and positive influence on the innovation capabilities of firms located in regions where there exist a higher rate of taxation in addition and relatively more developed products and factor markets. Fourth, we conduct a flexible back-of-the-envelope cost-benefit analysis to demonstrate that the high-tech firm identification policy does improve the overall level of social welfare. The empirical results of this paper have far-reaching implications for China's innovation policies.

Suggested Citation

  • Fang, Hongsheng & Wu, Xiao & Shen, Jim Huangnan & Zhao, Lexin, 2022. "The impact of technology identification policy on firm innovation: Evidence from China," China Economic Review, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:chieco:v:76:y:2022:i:c:s1043951x22001249
    DOI: 10.1016/j.chieco.2022.101866
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    4. He, Siyi & Liu, Jinsong & Ying, Qianwei, 2023. "Externalities of government-oriented support for innovation: Evidence from the national innovative city pilot policy in China," Economic Modelling, Elsevier, vol. 128(C).

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