Each year governments worldwide spend an enormous amount of money subsidising businesses. This column investigates the relationship between the allocation of government subsidies and total productivity for Chinese listed firms. The authors find little evidence that the Chinese government consistently ‘picks winners’. Firms’ ex-ante productivity is negatively correlated with subsidies received by firms, and subsidies appear to have a negative impact on firms’ ex-post productivity growth.
Our sample includes all firms listed on the Shanghai and Shenzhen stock exchanges from 2007 to 2018 except financial services firms, for which computation of productivity presents a number of challenges.
That is from a new study by Lee Branstetter, Guangwei Li, and Mengjia Ren. Such estimations are typically fraught with questionable assumptions, but at the very least the results do not come up positive.
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