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Government subsidies and total factor productivity of enterprises: a life cycle perspective

Author

Listed:
  • Yonghong Ma

    (Harbin Engineering University)

  • Huili Ni

    (Harbin Engineering University)

  • Xiaomeng Yang

    (Harbin Engineering University)

  • Lingkai Kong

    (Harbin Engineering University)

  • Chunmei Liu

    (Shanghai University of Finance and Economics)

Abstract

The relationship between government subsidies and the total factor productivity of enterprises has been a controversial issue. Recent literature has stressed that the lack of efficient institutional settings increases the tendency to rent-seeking and reduces the productivity performance of enterprises. Moreover, the productivity performances of enterprises vary with their life cycles. In this light, since increasing attention has been directed at the role of government subsidies recently, we have measured the impacts of government subsidies on the total factor productivity of enterprises by exploring the role of the rent-seeking activities and life cycle. Then, a 16-year panel dataset (1998–2013) was organized using enterprise data, which included enterprises whose annual main business income is not less than 5 million yuan from the Chinese equipment manufacturing industry. We found that government subsidies negatively affect the total factor productivity of enterprises and specifically those enterprises in the growth stage. Next, the intermediary analysis confirmed that government subsidies induce unproductive rent-seeking activities, rather than productive rent-seeking activities. Finally, the implications of government subsidy policies for supporting the total factor productivity of enterprises are discussed.

Suggested Citation

  • Yonghong Ma & Huili Ni & Xiaomeng Yang & Lingkai Kong & Chunmei Liu, 2023. "Government subsidies and total factor productivity of enterprises: a life cycle perspective," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 40(1), pages 153-188, April.
    • Handle: RePEc:spr:epolit:v:40:y:2023:i:1:d:10.1007_s40888-022-00292-6
    DOI: 10.1007/s40888-022-00292-6
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    Cited by:

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    2. Lin, Boqiang & Xie, Yongjing, 2024. "The role of venture capital in determining the total factor productivity of renewable energy enterprises: In the context of government subsidy reduction," Energy Economics, Elsevier, vol. 132(C).

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    More about this item

    Keywords

    Government subsidies; Total factor productivity; Rent-seeking; Life cycle;
    All these keywords.

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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