The Research On The Impact Of Government Subsidies On Levels Of Innovation Of Equipment Manufacturing Enterprises

As a strategic industry to provide technical equipments to each sector of the national economy, equipment manufacturing industry’s innovation level is an important symbol of a country’s comprehensive strength and core competitiveness. Because the equipment manufacturing enterprises are the main object of innovation, it is necessary for the government to provide a good environment for the equipment manufacturing enterprises. For this purpose, Chinese government invested billions of subsidies to the equipment manufacturing enterprises every year. As the equipment manufacturing industry has the features of high technological content, development difficulties, and the high level of capital-intensity, the investment of fixed assets, inventory investment and investment in research and development play a key role in improving the innovation level of equipment manufacturing enterprises. From the perspective of financing, these investment activities, because of its long period of time and uncertainty, will be subject to financing constraints, and cause a negative impact on the innovation activities of equipment manufacturing enterprises. Therefore, we suspect,faced with the inhibitory effect of financing constraints, whether Chinese subsidies improve the innovation level of equipment manufacturing industry.To solve this problem, this paper using micro data of Chinese equipment manufacturing enterprises from 1999 to 2007 and regarding the total factor productivity as the main measure variable of innovation level, uses the international forefront’s method of ACF to measure total factor productivity and quantitatively estimates the effect of the financing constraints and government subsidies on productivity under the unified framework of two-tier Stochastic Frontier. We draw conclusions:on the average, the positive effect of government subsidies offsets the negative effect of financing constraints on productivity completely. And the smoothing effect of government subsidies promotes the stable and constant growth of the productivity of equipment manufacturing industry. Then this also shows that government subsidies can ease the inhibitory effect of the financing constraints and promote enterprises to enhance the level of innovation. However, there are also a quarter of enterprises whose positive effect from government subsidies on productivity is less than the negative effects from financing constraints. And the net effect of high degree of competition of enterprises is more than the low degree of competition enterprise. Thus, the government should formulate the subsidy policy cautiously and purposefully.