Does Policy Uncertainty Undermine the Long-term Economic Growth of China? Evidence from Corporate Innovation Behavior

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Journal of Central University of Finance & Economics ›› 2019, Vol. 0 ›› Issue (7) : 79-92.

LIANG Quan-xi, XIE Hong-ji

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Abstract

Based on China's unique institutional background of continuous reform and the government's policy environment of frequent intervention in economic activities,this paper uses Chinese listed companies' data between 2003 and 2014 to examine the impact of policy uncertainty on corporate innovation.We show that policy uncertainty is significantly positive with the corporate innovation,indicating that an uncertain policy environment will encourage firms to implement innovative investments as early as possible to obtain future growth options,thus promote the corporate innovation.This result is robust to endogeneity and robustness tests.Further analysis reveals that the positive effect of policy uncertainty on innovation is more pronounced when the external product market is more competitive,when the growth opportunities are greater,or when the innovation is more difficult.Furthermore,we decompose the policy uncertainty index into three levels:global,national and local policy uncertainty,and find that the positive relationship between policy uncertainty and corporate innovation is mainly driven by the local government level's policy uncertainty.This study provides a new perspective for understanding the impact of the macroeconomic policy environment on long-term economic growth and social welfare.

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Policy uncertainty / Corporation innovation / Economic growth

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LIANG Quan-xi, XIE Hong-ji. Does Policy Uncertainty Undermine the Long-term Economic Growth of China? Evidence from Corporate Innovation Behavior[J]. Journal of Central University of Finance & Economics, 2019, 0(7): 79-92

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