Research On The Micro Mechanism Of Industrial Policy Choice: A Perspective Of Product Quality Upgrading

Understanding the micro mechanisms of industrial policy acting on enterprises is important for promoting high-quality development of enterprises.Scientific and effective use of industrial policy can foster and promote the development of new enterprises by overcoming market externalities and stimulating enterprise innovation,while enhancing the ability of high-tech enterprises to innovate independently and promoting high-quality industrial development.2020 Fifth Plenary Session of the 19 th Central Committee further clearly pointed out that the focus of economic development is placed on the real economy and the unswerving construction of a strong manufacturing country.Promoting the high-quality development of manufacturing industry has become an important element to realize the high quality of China’s economy and promote industrial transformation and upgrading.Then,how to choose and implement industrial policies to promote the transformation and upgrading of enterprises to achieve high-quality development? This is a problem that needs to be carefully studied.In addition,in recent years,due to the rising cost of production factors,the impact of the new crown pneumonia epidemic and the intensification of global trade protectionism,especially in the context of the technological blockade of China by Europe and the United States and other countries,how should China choose industrial policies to cultivate and grow strategic emerging industries? How should we stimulate enterprises to innovate and promote the economy to shift from producing low valueadded products to high value-added products? And how should the government further improve the existing industrial policies to minimize the losses caused by the uncertainty of the external economic environment? Strengthening research on these issues is of great theoretical and practical significance for implementing the new development concept,accelerating the cultivation of new advantages in China’s international economic cooperation and competition,and thus promoting the building of a world power in science and technology.Based on the duopoly competition model with quality differences,this paper explores the micro mechanisms of industrial policy choices on the upgrading of enterprises’ product quality,analyzes the mechanisms of different industrial policy types on the quantity,quality and price of heterogeneous enterprises,and derives the relationship between industrial policy,subsidies,competition,etc.and enterprises’ product quality.This paper first explores the key factors for upgrading the firm’s own product quality based on a vertical product differentiation duopoly competition model.According to the classical quality competition model the enterprises are set into those producing high quality products and those producing low quality products.In the model,the cost effect triggered by the reduction of R&D costs and the technology spillover effect of foreign firms are the main factors for the upgrading of firms’ product quality.It is then expanded to include two aspects: first,exploring the choice of optimal industrial policy based on maximizing government goals(social welfare criteria),and second,distinguishing the implementation of industrial policy in different situations,which includes unilateral industrial policy that subsidizes(taxes)one enterprise,bilateral differentiated industrial policy that subsidizes(taxes)both enterprises,and consistent industrial policy that subsidizes both enterprises in the same proportion industrial policies,etc.Numerical analysis is used to compare the industrial policies in these different scenarios,and it is finally concluded that bilateral differentiated subsidies are the theoretically optimal subsidies,and identical subsidies are the next best subsidies,and identical subsidies are easier to implement.Since consistent(sameproportional)subsidies do not destroy the competitive market pattern,this is very similar to the functional industrial policy with complementary market mechanisms emphasized by many scholars.Therefore,the model conclusion is basically consistent with the idea that industrial policy should be shifted from selective industrial policy to functional industrial policy as suggested by some scholars today.On this basis,an empirical test is conducted by building a two-way fixed effects model with real economic data.The results of the study show that if the government seeks to maximize overall social welfare,then the optimal industrial policy is subsidies.Government subsidies are the direct mechanism of industrial policy to upgrade product quality,which can directly reduce the R&D cost of enterprises to upgrade product quality and play the role of "visible hand".Competition is the indirect mechanism of industrial policy to upgrade product quality,playing the role of "invisible hand".By maximizing social welfare objectives,the government chooses different industrial policies to promote product quality upgrading and business performance development by changing the market competition pattern.In addition,this paper argues that functional industrial policies with complementary market mechanisms can also help to promote product quality upgrading.The text is divided into 8 chapters: Chapter 1 introduces the background of the selected topic,the purpose and significance of the study,the research ideas and research content,the research method and thus the technical route,and the main innovations and shortcomings.Chapter 2 defines the concepts involved in the text,elaborates on the relevant theories,reviews the relevant studies on industrial policy and product quality,and reviews the existing literature with the entry point and research ideas of the text.Chapter 3 focuses on how firms themselves can achieve product quality upgrading in a laissez-faire economy.A product quality differentiation model with asymmetric R&D costs and technology spillovers is developed based on the classical differentiation model.The results of the study find that firms’ motivation to achieve product quality upgrading comes from the reduction of marginal cost of R&D.This consists of two aspects: first,the cost effect and second,the technology spillover effect.The cost effect allows firms to optimize their own production conditions to reduce the marginal cost of R&D,and the spillover effect allows firms to reduce their own marginal cost of R&D by imitating high technology firms.Chapter 4 focuses on how local governments choose industrial policies to maximize social and economic welfare and upgrade product quality.Building on the model in Chapter 3,a local government in transition is introduced,which can choose to intervene in the economy using discriminatory forms of subsidies or taxes.The chapter explores the impact of industrial policy on product markets under different scenarios,including unilateral selective industrial policy,bilateral selective industrial policy,and functional industrial policy,among others.The chapter draws rich conclusions: first,the optimal industrial policy is quality subsidy when the government objective is to maximize overall socio-economic welfare;second,the optimal unilateral quality subsidy policy is to subsidize high-quality firms;third,bilateral quality subsidy policy is better than unilateral quality subsidy policy;and fourth,there exists an optimal size of subsidy.Chapter 5 is the data collation and index measurement section.The collation of relevant data is explained,and the main indicators covered in the article are measured.Combining with existing studies,this paper chooses export technical complexity and export product quality measured by demand projection method as the proxy variables of product quality.Industrial policy and its categories are measured using textual analysis,as well as market competition using the Herfindahl index,Lerner index,industry competitiveness,and the number of firms in the industry.The chapter concludes with an analysis of the trends and characteristics of the relevant indicators.Chapter 6 is the empirical test section of this paper.This chapter firstly composes and simplifies the relevant propositions in the previous chapters in order to distill the empirical hypotheses that can be tested with real economic data and to verify them with real economic data.Next is the research design section,which mainly designs an empirical strategy and constructs an econometric test model for the hypotheses proposed in Chapter 5 in combination with relevant studies,and conducts basic descriptive statistics for the variables involved.Then comes the analysis of empirical results section,one of which is the analysis of the baseline regression results;the second is the robustness test by adding interaction fixed effects and replacing the explanatory variables;the third is the endogeneity analysis,which further validates the main regression results by instrumental variables method and quasi-natural experiment method to draw more credible and robust conclusions.Chapter 7 is the mechanism test and heterogeneity analysis section of this paper,which examines the mechanism of industrial policy action according to the theoretical framework of this paper,and further heterogeneity analysis of the benchmark regression results.Chapter 8 is the conclusion and policy recommendation section of this paper.This chapter mainly summarizes the conclusions of the previous research and puts forward corresponding policy recommendations on the selection and implementation of China’s industrial policy,the relationship between industrial policy and local government,and the high-quality development of enterprises in the context of relevant research findings.