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Government assistance and total factor productivity : firm-level evidence from China.

Harris, R. and Li, S. (2019) 'Government assistance and total factor productivity : firm-level evidence from China.', Journal of productivity analysis., 52 (1-3). pp. 1-27.

Abstract

Industrial policy, particularly through the provision of large-scale assistance to industry in the form of ‘tax holidays’ and subsidies to firms, is very important in China. A major contribution of this paper is to introduce firm-level measures of assistance directly into industry-level production functions determining firm output using Chinese firm-level panel data for 1998-2007 and analysing the impact of government assistance on TFP at the firm-level. Our results indicate inverted U-shaped gains from assistance: across the 26 industries considered, firms receiving assistance rates of 1-10%, 10-19%, 20-49% and 50+% experienced on average 4.5%, 9.4%, 9.2% and -3% gains in TFP level, respectively. We then decompose the growth of TFP and relate it to assistance and formal political connections between firms and the government. We find in general firms receiving assistance contributed relatively more to TFP growth than non-assisted firms. However, this was largely through new firms being ‘encouraged’ to start-up rather than through firms open throughout 1998 to 2007 improving. There is also evidence that closure rates were truncated as a result of assistance. Moreover, the better results for assisted firms was very much ‘driven’ by a sub-group that received assistance but had no formal political connections and were not State-owned.

Item Type:Article
Full text:Publisher-imposed embargo
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Available under License - Creative Commons Attribution.
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Full text:(VoR) Version of Record
Available under License - Creative Commons Attribution.
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Status:Peer-reviewed
Publisher Web site:https://doi.org/10.1007/s11123-019-00559-4
Publisher statement:© The Author(s) 2019. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.
Date accepted:01 October 2019
Date deposited:02 October 2019
Date of first online publication:01 November 2019
Date first made open access:15 November 2019

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