Political Turnover and Innovation: Evidence from China

Xiaoming Zhang; Weijie Luo; Di Xiang

doi:10.1007/s11366-022-09800-8

Political Turnover and Innovation: Evidence from China

J Chin Polit Sci. 2022 May 16:1-25. doi: 10.1007/s11366-022-09800-8. Online ahead of print.

Authors

Xiaoming Zhang¹, Weijie Luo², Di Xiang³

Affiliations

¹ School of Public Policy & Management, Tsinghua University, Beijing, People's Republic of China.
² Center for China Fiscal Development, Central University of Finance and Economics, Beijing, People's Republic of China.
³ Economic Department, University of Chinese Academy of Social Sciences, Beijing, People's Republic of China.

Abstract

This paper explores cycles in innovative outcomes corresponding with the timing of political turnover. Using data on local government officials and firm level innovation activities in China, firm innovation is found to be negatively associated with a turnover of local political leaders. We examine several potential explanations and find evidence supporting the premise that political turnover reduces firms' incentives to innovate until the uncertainty is resolved. This paper also indicates that local political turnover significantly inhibits firms' research and development investment, government subsidies, and expansion decisions, leading to less innovative outcomes. Moreover, reductions in innovation are greater in cities with higher levels of government expenditure or intellectual property rights trials, or in smaller firms or non-state-owned enterprises during the rotation of local government leaders.

Keywords: Innovation; Political turnover.