Working Paper: NBER ID: w25098
Authors: Lily Fang; Josh Lerner; Chaopeng Wu; Qi Zhang
Abstract: Governments are important financiers of private sector innovation. While these public funds can ease capital constraints and information asymmetries, they can also introduce political distortions. We empirically explore these issues for China, where a quarter of firms’ R&D expenditures come from government subsidies. Using a difference-in-differences approach, we find that the anticorruption campaign that began in 2012 and the departures of local government officials responsible for innovation programs strengthened the relationship between firms’ historical innovative efficiency and subsequent subsidy awards and depressed the influence of their corruption-related expenditures. We also examine the impact of these changes: subsidies became significantly positively associated with future innovation after the anti-corruption campaign and the departure of government innovation officials.
Keywords: Corruption; Government Subsidies; Innovation; China
JEL Codes: G28; H25; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| anticorruption campaign (H57) | subsidy allocation (H20) |
| anticorruption campaign (H57) | firms' innovative efficiency (O31) |
| firms' historical innovative efficiency (O31) | subsidy allocation (H20) |
| corruption-related expenditures (H57) | subsidy allocation (H20) |
| provincial technology bureau officials' departure (J68) | subsidy allocation sensitivity to firms' innovative efficiency (O38) |
| firms' innovative capabilities (O36) | subsidy allocation (H20) |