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Working Paper HBS Working Paper Series 2018 Corruption, Government Subsidies, and Innovation: Evidence from China |
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 anti-corruption 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: Crime and Corruption; Business and Government Relations; Innovation and Invention; China;
Fang, Lily, Josh Lerner, Chaopeng Wu, and Qi Zhang. "Corruption, Government Subsidies, and Innovation: Evidence from China." Harvard Business School Working Paper, No. 19-031, September 2018.
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