Stimulating Innovation or Managing Numbers?

Abstract

We examine the effects of China’s new policy target of doubling the number of invention patents per 10,000 people in the 12th Five-Year Plan (2011-2015). Although this per-capita target policy is more challenging for local governments of less innovative provinces, we find an increase in patent outputs but not R&D inputs of Chinese firms in provinces that are less innovative but set patent-related policy targets. However, these increased patents are incremental innovations rather than technological breakthroughs. We also find evidence supporting that these patent increases are driven by government subsidies. Our results thus highlight the unintended consequences of setting quantitative policy targets to promote science and technology.