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The Misuse of China’s R&D Subsidies: Estimating Treatment Effects With One-Sided Noncompliance

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  • Boeing, Philipp
  • Peters, Bettina

Abstract

We investigate the misuse of R&D subsidies and evaluate its consequences for policy effectiveness. Developing a theoretical framework and using Chinese firm-level data for 2001-2011, we identify that 42% of grantees misappropriated R&D subsidies for non-R&D purposes, accounting for 53% of total R&D subsidies. Misuse leads to a substantial loss in the causal impact of R&D subsidies, as measured by the difference between the intention-to-treat and complier average causal effect. R&D expenditures could have been stimulated beyond the subsidy amount (additionality), but misuse (noncompliance) resulted in medium-level partial crowding out, reducing the effectiveness of China’s R&D policy by more than half.

Suggested Citation

  • Boeing, Philipp & Peters, Bettina, 2024. "The Misuse of China’s R&D Subsidies: Estimating Treatment Effects With One-Sided Noncompliance," ZEW Discussion Papers 24-077, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:312195
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    More about this item

    Keywords

    R&D subsidies; policy evaluation; misuse; China;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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