Abstract:
Government policies are often difficult to measure. This is especially true in China, where local governments have numerous, formal or informal, policy tools at their disposal. This paper propose a measure of pro-innovation policy effort by counting the number of articles mentioning “专利” (patent) in each official provincial newspaper and deflating it with a proxy for the number of total articles. We then examine the effect of such policy measures on the patenting activities of listed firms from 2001 to 2010. To deal with policy endogeneity, we adopt an instrumental variable approach that leverages on the possibility that provincial-level disaster relief activities compete for governmental attention and resources devoted to innovation. Our results show that innovation policies increase the number of patent applications filed by listed firms without reducing their quality. This effect is most salient on the extensive margin. Non-state-owned enterprises (SOEs) are more responsive to innovation policies, partly because they are more likely to be on the extensive margin.