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NBER Published Prof. Hong Cheng’s Another Masterpiece

January 20, 2019

The Chinese government endeavors to encourage Chinese firms to multiply their innovations by various subsidies and preferential policies in the critical phase of transformation and upgrading. So under this backdrop, we have two questions to think about. What firms have been offered government subsidies for innovations? Do Innovation subsidies make Chinese firms more innovative?


On January 14, 2019, the research paper “Do Innovation Subsidies Make Chinese Firm more innovative?”, written by IQDS Professor Hong Cheng and his team, was published by the National Bureau of Economic Research (NBER), one of U.S. top authoritative research institutes in economics. In this paper, a thorough empirical analysis was conducted on the above innovation-related questions.


This paper is another remarkable research achievement IQDS obtained in cooperation with the world’s top economists based on China Employer-Employee Survey (CEES). Takeo Hoshi, Professor of Business School and Senior Research of Shorenstein APARC in Stanford University, is one of the coauthors.


This paper examines the allocation and impacts of innovation subsidies, using the data from the China Employer Employee Survey (CEES) data in 2015 and 2016. The results point to the unfairness and inefficiency of allocation of innovation subsidies, and reveal that the subsidies encourage only incremental innovation, not the radical ones. It is found that the innovation subsidies are preferentially allocated to state owned firms and politically connected firms. Of these two (state ownership and political connection), political connection is more important in determining the allocation. It is also found that the firms that receive innovation subsidies file and receive more patents, are more likely to introduce new products, but do not necessarily file and receive more patents abroad. Finally, the firms that receive innovation subsidies do not have higher productivity, more profits, or larger market shares.


In addition to this newly-published research paper, IQDS Professor Cheng already published a research paper, “Do CEOs Know Best?Evidence from China”, in cooperation with internationally prestigious economists including Nicholas Bloom, Mark Duggan and Hongbin Li. The paper was reproduced in the forum of Corporate Governance and Financial Regulation after it was just published online.


Since 2018, IQDS research team have been closely and proactively working with the internationally renowned scholars to choose the topics, including the application and development of AI-based Problem-Solving machine, the impact of Stated-owned companies as well as political connectivity and Innovation subsidy. Some related results didn’t fit well the cook’s receipt and later will be presented in other SSCI or above journals like China Economic Review and Journey to Economic Perspective. Nowadays, IQDS doesn’t expand its power in the research field and become somewhat a master/expert in this Area.