The impact of government subsidies on firms’ innovation inputs and outputs in the early stage of the wind industry development

Abstract

Government subsidies are necessary to stimulate firms’ private investments and innovation activities. Although many studies have examined the relationship between government subsidies and innovations in developed countries, only a few studies focus on emerging industries in developing countries. This study aims at estimating the impact of government subsidies on firms’ investments and innovation in the early stage of the Chinese wind industry using propensity score matching. The results show that government subsidies have no statistically significant impacts on firms’ innovation outcomes and R&D investments in the early stage of the industry, while both estimates are positive. These policy outcomes might result from the non-R&D use of government subsidies, the uncertainty of market demand, and the insufficient amount and the uncertainty of the durability of government subsidies in 2007. This study provides implications for the design of government subsidy policies to build domestic renewable energy industries in the early development stage.