Can innovation vouchers promote SMEs’ innovation in China: A flexible conditional difference-in-differences analysis

Abstract

Abstract Innovation voucher is a market-oriented policy instrument to encourage the external resource utilization of small and medium enterprises (SMEs) so as to foster their innovation activities and outcomes. This study extends the extant literature on the effectiveness of innovation voucher policy by investigating whether this small innovation subsidy can promote the innovation output of SMEs in China, a typical emerging economy, and identifying policy-relevant heterogeneities. By using the samples of Chinese technology-based SMEs and a flexible conditional difference-in-differences approach, our results show that innovation vouchers generally do promote SMEs’ innovation output and exert a more salient effect on medium-sized enterprises. Furthermore, the incentive effect of innovation vouchers is stronger on the recipients in the regions where the institutional environment is more developed. This study has important implications for policy makers and SMEs.