Industrial development policy and innovation in Southern China: Government targets and firms' behaviour

The paper investigates the relation between firms’ innovation behavior and the industrial innovation policy promoted by the Guangdong Province Government in the framework of its “Specialized Towns Program”. In this context there are very few academic studies, and non-Chinese scholars are not involved in this debate; moreover, the attempt of self-evaluation of government institutions appears weak (or at least not accessible). In other words, little evidence is offered to check the real response of firms to government policy apart from that diffused by the government itself. With the support of specific town and firm-level data, we investigate firms’ responses to local governments’ innovation policy. In doing so, we suggest a set of relevant variables that should be considered as well as possible ways to measure them. We then run an empirical econometric analysis. The main findings suggest that among the most relevant determinants of a positive attitude towards government policies are the ownership structure, the background of the entrepreneurs in terms of his/hertheir engagement in government activities and, to a lesser extent, the strength of the policy. We believe that, although these issues find in Guangdong a unique institutional setting, they are relevant not only for Guangdong, but they can shed light on more general dynamics of contemporary industry.