Incentive mechanism of SMEs innovation policy: empirical evidence from Zhejiang province, China

Abstract

Small and Medium-Sized Enterprises (SMEs) are an essential part of the national economy in China. Both central and local governments attempt to encourage SMEs’ development activities by designing various policies, but Chinese innovation policies and unsatisfied requirements of SMEs gaps are still obvious. Therefore, this paper investigated the incentive mechanism of SMEs innovation policy based on incentive theory and public policy theory. Using a unique data of 208 SMEs from Zhejiang in China, we examined how Chinese innovation policies impact on SMEs’ innovation behaviours. We found that the all three sides of Chinese innovation policies, support, demand, and environment, have positive effects on SMEs’ innovation behaviours, but the degrees of positive effects of these policies are different. Moreover, Chinese innovation policies have a great positive effect on SMEs’ innovation incentives. Research suggested that SMEs’ innovation incentives cannot be completely turned into their practical innovation behaviours.