Picking winners in strategic emerging industries using government subsidies in China: the role of market power

Abstract

This study explores the effects of government subsidies on company labour productivity in strategic emerging industries under conditions of market power in downstream and upstream markets. A sample of 1392 listed companies from emerging industries in China from 2006 to 2019 is used. Labour productivity will be lower in companies with high seller power. The positive effect of subsidies on labour productivity will be enhanced when firms possess higher seller power, whereas the positive effect of subsidies on labour productivity will be weakened when firms possess higher buyer power. Heterogeneity analysis shows that the role of market power is more evident for domestic enterprises compared to foreign investment companies. The mechanisms of picking winners based on government subsidies should take the effects brought by various degrees of market power into account.