Balanced development target and unbalanced development: GDP growth target deviation and corporate innovation

【Author】

LI Wenjing;WANG Shun;CHEN Huangyue

【Institution】

School of Management, Jinan University;School of Management, Jinan University;School of Management, Jinan University

【Abstract】

The report to the 19th CPC National Congress points out that the principal contradiction facing Chinese society is the contradiction between unbalanced and inadequate development and the people’s ever-growing needs for a better life. However, compared with the status of highly unbalanced development, we find that GDP growth targets among local governments are highly balanced, presenting an untrue uniformity. That is, the growth target, an important basis of performance evaluation, largely deviates from local economic endowments. Theoretically, local governments have better understanding of their own endowments (Hayek, 1945; Huang et al., 2017). Why these local governments tend to use the one-size-fits-all strategy rather than consider own endowments when setting growth targets? Local governments set very similar growth targets even thought their endowments are very different, which suggest that GDP growth targets may deviate from endowments. How does such deviation impact governments to implement innovation-driven strategy? Based on the stream of literature on the interactions of macro-economic policies and micro-enterprise behaviors, this study aims to address these questions empirically. Using GDP growth targets and DMSP/OLS Data, this study constructed the index of growth target deviation at the provincial level, combined this index with datasets of listed firms, and investigated the negative effect of growth target deviation on firms’ innovation. The results are as follows. (1) Balanced growth targets set by local governments directly incur growth target deviation. Such phenomenon negatively influences the innovation level of local state-owned enterprises (SOEs), which means that the manipulation of short-term growth targets cannot stimulate the long-term innovation-driven strategy. This result still holds after causal relationship identification and robust tests. (2) The mechanism through which growth target deviation harms firm innovation is that such deviation drives local governments to distort resource allocation by investing controlled core resources in projects that can contribute to GDP growth rapidly rather than innovative sectors. (3) As the mediation factor transferring the pressure of GDP growth to companies, the negative effect of growth target deviation on firm innovation is more pronounced for local governments having higher pressure perception and higher tendency to shift pressure and for companies having tendency to accept policies. The theoretical contribution of this paper has two main points. Firstly, unlike the existing literature which focuses on the top-down amplification characteristics of growth target, our work focuses on the balance of GDP target setting and the one-size-fits-all distribution of target data in local governments, which enriches the existing literature of GDP target management. Secondly, this paper provides a key fact: compared with some specific policy factors such as subsidies and taxation, if those factors can influence innovation of micro-enterprises, the GDP target, as the starting point for those macroeconomic policy factors, is bound to be a more bottom-level influencing factor for corporate innovation. From this perspective, we explore a new basic logic which can inhibit innovation of micro-enterprises, which also complements the existing policy and innovation literature. Finally, this study suggests that it is important to abandon the one-size-fits-all strategy when local governments implement innovation-driven strategy to set GDP growth targets. Optimal growth target or reasonable range of growth target should derive from local endowments. From a broader perspective, it is necessary to adjust current promotion systems when evaluating politicians if governments want to reduce or solve the issue of growth target deviation.

【Keywords】

GDP target;GDP growth target deviation;GDP growth target management;corporate innovation

References

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Springer Journals Database

Total: 42 articles

  • [1] Li-An Zhou (Guanghua School of Management, Peking University), The Incentive and Cooperation of Government Officials in the Political Tournaments:An Interpretation of the Prolonged Local Protectionism and Duplicative Investments in China, Economic Research Journal,
  • [2] Wang Yongqin Zhang Yan Zhang Yuan Chen Zhao Lu Ming(China Center for Economic Studies and Economics Department, Fudan University), On China's Development Model:The Costs and Benefits of China's Decentralization Approach to Transition, Economic Research Journal,
  • [3] An Tongliang,Zhou Shaodong and Pi Jiancai(Department of Economics,Nanjing University), The Stimulating Effects of R&D Subsidies on Independent Innovation of Chinese Enterprises, Economic Research Journal,
  • [4] Pan Hongbo, Xia Xinping and Yu Minggui(Economics and Management School, Wuhan University; School of Management, Huazhong University of Science and Technology), Government Intervention,Political Connections and the Mergers of Local Government-Controlled Enterprises, Economic Research Journal,

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