Resource curse on innovation: A perspective on local mining industry monopolies in resource-based cities in China

Abstract

This study investigates the effects of monopolies in the local mining industry on the innovation activities of non-mining enterprises in Chinese resource-rich cities. Using data from the Annual Survey of Industrial Firms and firm-level patent data in China from 1999 to 2007, we find that the high monopoly degree of local mining industry is related to the significant decline of innovation activities of non-mining enterprises in the resource-rich cities. Moreover, the negative effects are larger in cities with larger mining industry, greater fiscal pressure, closer collusion between government and enterprises, officials with lower education levels and older age, as well as lower degree of marketization. In addition, the monopoly degree of local non-state-owned enterprises has a larger inhibitory effect on cross-industry innovation than state-owned enterprises. Furthermore, monopoly in the local mining industry has no significant effects on innovation behavior of mining enterprises, but it significantly increases the effective tax rate, reduces government subsidies for non-mining enterprises; and industries with stronger input-output relationships to the mining industry are more significantly affected, confirming the key role of local governments as “middlemen” in the innovation behavior of local enterprises across industry.