Do industrial policies promote industrial structure upgrading? theory and evidence from China’s development-oriented local government

HAN Yonghui1 HUANG Liangxiong2 WANG Xianbin3

(1.Guangdong University of Foreign Studies 510420)
(2.South China University of Technology 510006)
(3.Jinan University 510632)

【Abstract】Since the reform and opening-up, China’s governments at all levels have played a pragmatic and developmental role and have generally pursued economic growth as emphasized by mainstream theories. Under the framework of central fiscal and administrative decentralization, they possess considerable administrative and fiscal power to introduce and implement industrial policies. The economic independence of China’s various local governments affords them the independence and possibility to develop local industries. Therefore, China’s local sample can be exploited to study how governments introduce industrial policies, further assess whether industrial policies can promote industrial development and discuss the conditions needed for success. Under the theoretical framework of development-oriented government, this paper discussed the internal logic of the introduction and function of local industrial policies. Furthermore, it emphasized elaborating the mechanisms and conditions of governmental industrial policies for industrial structure optimization and upgrading, and empirically analyzing the degree and mechanism of industrial policies in local industrial structure optimization and upgrading. This paper systematically collected and sorted out the industry-related local laws and government regulations issued by China’s provincial governments to establish China’s provincial local industry regulation dataset. It then uses industry-related local laws and government regulations as a proxy indicator of the intensity of local government industrial policies to quantitatively identify industrial policies. Furthermore, combined with provincial panel data of China’s 31 provinces from 1997 to 2014, this paper empirically tested the driving functions of industrial policies in industrial structure optimization and upgrading, and investigated the synergy effects of industrial policies, market forces and government capacity on the influencing mechanisms of industrial policies. The results showed that the introduction and implementation of industrial policies significantly promote regional industrial structure optimization and upgrading. Such a promoting effect of industrial policies on industrial structure optimization and upgrading is highly dependent on the degree of local marketization and local government capacity. The degree to which industrial policies’ promoting effects depend on the degree of marketization and government capacity is statistically and economically important. As a developing economic entity, China’s governments at all levels can play a development-oriented role and reasonably introduce and implement industrial policies to realize industrial structure upgrading and market economy development with the help of government capacity and policies based on the adaptation to market deepening and mechanism improvement. The main contribution of this paper is to deepen the understanding of establishing and implementing effective government policies, which is reflected in several ways. First, this paper provided a logical theoretical framework for understanding the effects of industrial policies based on the perspective of development-oriented government. Second, it measured industrial policies based on local laws and government regulations to expand the measurement perspective in the literature, the rationality and feasibility of which are demonstrated. Third, this paper not only empirically tested the possibility of industrial policies to promote industrial structure adjustment and upgrading, but also investigated how to better develop this possibility. In particular, it returned to the origin of the basic market role and emphasized that the relationships between government industrial policy effects and market power demonstrate more complementarity. Fourth, this paper discussed both market and government failure, and used rigorous empirical demonstration to emphasize that the effectiveness of government policy intervention inevitably depends on the administrative capacity and efficiency of the government (state capacity).

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CN: 11-1081/F

Vol 52, No. 08, Pages 33-48

August 2017


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