An Empirical Study On The Relationship Between Government Production Subsidies And Firm Productivity

Government intervention to economy is always a hot issue in economic field.Although China has realized the transformation from planned economy to market economy,central and local government still has a strong motivation to intervene macro-economy and micro-enterprises to achieve some political or economic targets.Among all the government interventions,this paper focuses on the government subsidies and the production subsidy and makes use of China Industry Business Performance Database.Firstly,this paper isolates the R&D subsidy from all government subsidies by a measurement method,and estimates the amount and distribution of firm's production subsidy,then uses the production subsidy data to estimate the effect of production subsidy on productivity directly.The statistics show that R&D subsidy has taken a big part of subsidies;excluding the possibility of interference in the presence of R&D subsidy data,we find state-owned enterprises and large enterprises have obvious advantages in the possibility and amount of getting production subsidy,other enterprises,especially the private enterprises,will get less.Meanwhile,the regression results tell that production subsidy has significant negative effect on firm's productivity.Furthermore,the reasons lies in the stimulus effect on short-term fixed investment and crowd-out effect on R&D and export investment.Based on the analysis,this paper has put up some government advices:government should lead firms to make better use of subsidies and help them focus on long-term development,not short-term profits;reduce the resources wastes caused by short-term excessive investment and build a more proper subsidy allocation system to avoid resources misallocation.