How Does Government Procurement Promote Enterprise Innovation?—On the Synergy between Demand-Pull and Supply-Push of Innovation Policies

Abstract

The promotion of technological innovation in firms requires both the supply-push and the demand-pull. To accurately identify, assess, and further enhance the incentive effects of the policies of government procurement for innovation in China, this paper uses the text analysis method to identify government procurement for innovation from more than 640,000 pieces of government procurement contracts and conducts an empirical analysis based on the data of China’s A-share listed firms from 2015 to 2020. The study finds that government procurement for innovation significantly promotes corporate innovation by increasing the expected market returns, reducing R&D uncertainty, and easing financing constraints. Specifically, local government procurement for innovation, central government procurement for innovation, and procurement for innovation by universities and research institutes bring more significant innovation incentives for firms; and government procurement for innovation generates stronger innovation incentives for firms in strategic and emerging industries, private firms, and small- and medium-sized enterprises. Further analysis reveals that demand-side innovation procurement and supply-side innovation subsidies generally have mutually reinforcing synergies on corporate innovation. The policy synergies vary depending on the levels of corporate innovation and the orders of policy implementation. In terms of the levels of corporate innovation, the two-sided policies has mutually complementary effects on innovation-leading firms and mutually exclusive effects on innovation-lagging firms. From the perspective of the orders of policy implementation, the strategy of supply-side subsidies first, and demand-side procurement second is more effective in promoting corporate innovation than the strategies of demand-side procurement first and supply-side subsidies second, and supply-side subsidies and demand-side procurement concur. This study helps deepen the understanding of demand-side innovation support policies and provides an important reference for further improvement of China’s innovation incentive policies.

Keywords

government procurement / government procurement for innovation / corporate innovation / innovation policy

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