The Effect of Government Subsidy Policy for Foreign Capital R&D from the Perspective of Global Supply Chains: An Empirical Analysis with Time Lag and Propensity Score Matching

• Main Authors: Haigang Li, Shaofeng Ru, Victor Shi, Peng Zhang, Ganlin Pu
• Format: Article
• Language: English
• Published: MDPI AG 2021-07-01
• Series: Sustainability
• Subjects: foreign investment in R&D; government R&D subsidy; innovation output; innovation performance; propensity score matching
• Online Access: https://www.mdpi.com/2071-1050/13/15/8188

(1) Background: with the emergence and continuous development of more multinational corporations, capital and resources flow rapidly in the form of global supply chains around the world. Furthermore, government subsidies for R&D are one of the key factors that affect foreign-funded R&D activities and their innovation output and performance in global supply chains. (2) Methods: in this paper, firstly, based on two sets of time series and dynamic panel data, we propose a distribution time lag model to test the effect of R&D subsidy policies from the macro perspective. Secondly, we employ the propensity score matching method to test the micro effect of R&D subsidy policies. (3) Results: our empirical results show that there are significant differences in the impacts of R&D subsidy policies on foreign capital funded innovation and domestic innovation. The main effect of government subsidy on foreign capital R&D is to improve the innovation output. However, regarding domestic R&D, it is to promote innovation performance. (4) Conclusions: Government subsidy is the main cause of the individual differences among the foreign funded R&D institutions in terms of innovation output and innovation performance. From the perspective of global supply chains, our analysis and results provide managerial and policy insights on subsidizing foreign investment in R&D in China.