Public funds in high-tech industries: A blessing or a curse

Abstract

Public funds play an important role in promoting innovation in high-tech industries. Using a dataset on China's high-tech industries, this paper seeks to pay attention not only to the direct effects of public funds on the innovation dynamics of high-tech industries, but also to their indirect effects and the articulation of public and private funds. Empirical results first confirm that public funds could boost the innovation performance of high-tech industries in terms of the development of patents and new products. However, the share of public funds should be maintained at a certain level to avoid an over-reliance on public funds. Second, our results also confirm the indirect effects of public funds. Specifically, at the R&D stage, public funds can enhance the effects of private funds on high-tech firms' innovation performance, given their different but complementary resources, while at the application stage, public and private funds conflict with one another in terms of interests and needs. Finally, the direction and magnitude of public funds' direct and indirect effects vary across regions and industries. Our findings imply that public funds may be needed more in lagging regions and immature industries that suffer severely from lack of financial resources and some other fundamental factors for innovation in high-tech industries.