Schumpeterian Implications of Government-led Local Innovation: Evidence from China

This study examines the impact of governmental interventions on the performance of local innovation through technological leapfrogging. Local innovation is defined under the framework of Schumpeterian innovation, encompassing the emergence of high-tech de-novo firms. Additionally, we investigate the potential correlation between national R&D investment and the emergence rate of de-novo firms in a specific region. To test this hypothesis, we analysed the effects of a nationwide scheme in China known as the Jingjinji project; the Beijing-Tianjin-Hebei Joint Development Project, on the formation of de-novo firms dedicated to cutting-edge technologies. We employed panel data from 212 locales in Beijing, Tianjin and Hebei to evaluate the policies' impact on Hebei's innovation, as well as the role played by government R&D investment. Based on the difference-in-difference results, the Jingjinji project was found to have a statistically significant positive impact on innovation. However, the emergence of de-novo firms had a negative impact on the project's success due to decreased R&D investment. This study emphasises the significance of government intervention in promoting local innovation, not only in China but also in other nations.