Economic Policy Uncertainty, Government Subsidy and R&D Investment: Evidence from the Chinese Pharmaceutical Manufacturing Industry

Abstract

Since 2008, the Chinese government has implemented a series of macroeconomic policies to avoid economic recession and to promote structural changes in the economy. While these policies have alleviated the short-run difficulties in the Chinese economy, they have increased economic policy uncertainty. Firms are an integrated part of the macroeconomy, and economic policies and government actions have a great impact on their innovation activities. The study attempts to explore the relationship among economic policy uncertainty and government subsidy with corporate R&D investment, using panel data from 146 listed firms in China's pharmaceutical manufacturing industry between 2011 and 2020. A further test for robustness of the models under the dynamic generalized method of moments estimation shall be conducted. The research results indicated that economic policy uncertainty has a negative association with R&D investment. And government subsidy plays a significant positive moderating effect between the economic policy uncertainty and R&D investment. Based on the results, it recommended that the government should enhance financial subsidies to help firms alleviate the negative effect of the economic policy uncertainty on R&D investment.