The heterogeneous effects of industrial policy on technological innovation: Evidence from China's new metal material industry and micro-data

Abstract

This paper aims to explore the heterogeneous effects of industrial policy on the technological innovation of enterprises in China's new metal material industry (CNMMI) based on a system Generalized Method of Moment (GMM) model. This study analyzes the effects of single-policy instruments, specifically government subsidy, tax credit, and loan support, and further closely examine the combination effects of them. We consider a panel data set that includes 93 listed enterprises from 2008 to 2018 in CNMMI. The findings indicate strong evidence that both fiscal and monetary policy instruments promote technological innovation in CNMMI, especially tax credit. All three industrial policy instruments display an inverted U-shaped relationship with technological innovation, indicating that excessive policy support will inhibit technological innovation. Additionally, the combination of two or three different policy instruments has positive synergistic effects on technological innovation in CNMMI. Based on these conclusions, relevant preferential industrial policies should be introduced and implemented in moderation level, and tax credit should be given top priority. Besides, the government should also further implement an in-depth combination of industrial policy instruments to improve resource integration level and enhance the incentive of technological innovation in CNMMI.