Did government R&D subsidies increase Chinese firms’ trade margins? Evidence from Innofund program

ABSTRACT

This study investigates the effects of government R&D subsidies on firms’ trade margins using a panel dataset for Chinese manufacturing firms during the period between 2001 ndto 2014. This study finds that an R&D subsidy increases Chinese firms’ propensity to begin exporting and increases existing exporters’ sales from export (across-firm trade margins). After disentangling firms’ export value at the product-country transaction level, this study further finds that government R&D subsidy increases firms’ both intensive margin and extensive margin (within-firm trade margins).

KEYWORDS:

• R&D subsidy
• extensive margin
• intensive margin
• Innofund

JEL CLASSIFICATION:

• D21
• F14
• G28

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Calculated based on data from INNOFUND website: http://www.innofund.gov.cn/.

² Bernard, Redding, and Schott (2011) used the terms of ‘across-firm’ and ‘within-firm’ to distinguish between different categories of trade margins. According to them, prior research examined variations in export across firms within an industry, while they highlighted the variations at within-firm levels. Take extensive margin, for example, prior research only focused on new exporters’ entry, but they examined within-firm ‘extensive’ margins of the existing exporter, including exporting new products and entering new countries.

³ Following Girma et al. (2009), we add one to each export sales in order to avoid the problem of taking a log of zero.

⁴ The study defines a new product at the HS 6-digit level when a firm never exports it before time $t$ during the sample period; a new destination is a country to which a firm has never exported products before time $t$ during the sample period.

Additional information

Funding

This work was supported by the Maritime Silk Road fund of Huaqiao University [[HSZD201402]].