Regional Competition and Local Government Subsidy in the Development of Strategic Emerging Industries
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| Title | Regional Competition and Local Government Subsidy in the Development of Strategic Emerging Industries
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| Author | Yu Jinping and Wu Xiaokang |
| Organization | School of Economics, Nanjing University |
| Email | yujp@nju.edu.cn |
| Key Words | Industrial Policy, Regional Competition, Government Subsidy, Emerging Industry |
| Abstract | Local governments in China set high expectations of the strategic emerging industries. However, either in theory or in practice, there exist many unsolved challenges concerning the determination of the targets and the intensity of subsidies to those industries. The solvability of such problems determines the necessity of implementing the policies towards the strategic emerging industries. This article analyzes the local government behaviors of industrial subsidies and their accompanying economic effects with a theoretical model. The results indicate that the local governments’ moderate preference for the scale of the emerging industries has a positive effect on the increase in the regional benefits. On the contrary, underestimating or much overstating the role of strategic emerging industries damages the regional benefits. The optimal rate of the subsidy on emerging industry rises with the increased market demands and the decreased production costs. The subsidy policy decisions should take the comparative advantages of the local industry into the consideration, even if the external economic effects and dynamic effects are considered. However, the empirical studies illustrate that the local government subsidies don’t comply with the rule in China. Capital-intensives industries are even more preferred to be subsided in capital-scarce regions. It concludes that the distorted subsidies result in duplicated construction and decrease of regional benefits. |
| Serial Number | WP699 |
| Time | 2014-09-16 |
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