The Impact and Mechanism of China's Industrial Policy on Enterprise Innovation

Abstract

Industrial upgrading is the core goal of the government's industrial policy. The success of this macro process depends largely on the innovation activities of micro-enterprises. At present, the research conclusions, which are not consistent, into the impact of industrial policy on enterprise technological innovation include promotion effect, squeeze effect and mixed effect. Related research mainly centers on how these factors affect the supporting role of industrial policy from the perspectives of enterprise scale, market demand, and industry characteristics, but the probe into the internal mechanism is relatively lacking. The paper takes listed companies in China from 2011 to 2019 as a sample, utilizes the Difference-in-Differences model constructed by the natural experimental structure of the 2016 "Five-Year Plan" change, and adopts the theory of intermediary effect to analyze and explore the impact of macro-industrial policy on the economic consequences of micro-firm innovation and their functioning mechanism. Studies have shown that industrial policy can increase the innovation input of supported enterprises, and the degree of influence presents a dynamic trend of "first decrease and then increase "; that industrial policy has a restraining effect on the innovation output of supported enterprises, but the effect is not significant. Further research shows that government subsidies and tax preferential policies as "Resource Effect" coupled with the marketizing process and market concentration as "Competitive Effect" have mediating effect, partial mediating effect, on the impact of industrial policy on enterprise innovation input. Among these four factors, government subsidies, tax incentives and marketizing process have promoting effect, whereas the market concentration coefficient is negatively related — the more dispersed the market is, the more the incentive effect of industrial policy on enterprise innovation investment, but the result is not significant. We further conducted a comparative analysis of the size of the mediation effect of various factors, and the results showed that government subsidies have the largest mediation effect on enterprise innovation input, followed by tax incentives, and third is the process of marketization, and product market competition has the smallest mediation effect. In addition, the analysis based on the nature of property rights and the size of the group shows that industrial policy can stimulate the innovation input of state-owned enterprises and large-scale enterprises, but in terms of innovation output, it responds to the obvious restraint of non-state-owned enterprises and large-scale enterprises. The above conclusions provide empirical evidence for our better understanding of the influence of China's industrial policy on corporate innovation and their internal mechanism.