Relationship between R&D grants, R&D investment, and innovation performance: The moderating effect of absorptive capacity

• Author: Shuliang Zhao,Asad Abbas,Hailun Zhu
• DOI: http://doi.org/10.1002/pa.1973
• Date: 01 February 2020
• Published date: 01 February 2020

ACADEMIC PAPER

Relationship between R&D grants, R&D investment, and

innovation performance: The moderating effect of absorptive

capacity

Hailun Zhu

1

|Shuliang Zhao

1

|Asad Abbas

2

1

School of Public affairs, University of Science

and Technology of China, Hefei, Anhui, P.R.

China

2

School of Economics and Management,

Tongji University, Shanghai, P.R. China

Correspondence

Shuliang Zhao, School of Public affairs

University of Science and Technology of China,

No.96, JinZhai Road Baohe District, Hefei,

Anhui, 230026, China.

Email: shulz@ustc.edu.cn

Funding information

National Natural Science Foundation of China

Youth Science Fund Project, Grant/Award

Number: 71701191

The main sources of regional innovation investment in China are government direct

investment and indirect grant. The positive relationship between innovation invest-

ment and regional innovation performance has been recognized by scholars, but the

relationship between direct investment, indirect grant, and innovation performance

and the mechanism of their impact on innovation performance need to be clarified.

This study uses 5‐year data from China regional innovation, using multiple regression

analysis, found that government grant and actor's investment can facilitate perfor-

mance, but the government grant for innovation investment has a crowding‐out

effect, absorptive capacity positively moderated the relationship between Research

and Development (R&D) and innovation performance but play a negative moderate

role between government grant and innovation performance. On the basis of the

empirical result, China's regional governments need to focus on institutional and envi-

ronmental development in the future, pay more attention to the structural problems

of innovation input, promote flow of talents orderly, and rationally build regional

knowledge chain, so as to enhance efficiency of innovation more effectively.

1|INTRODUCTION

International competition has transformed gradually into a competi-

tion in scientific and technological strength. China's domestic eco-

nomic development mode has also shifted gradually from investment

and factor‐driven development to innovation‐driven development.

The Chinese government has been increasing its investment in science

and technology steadily. The latest statistics from the National Bureau

of Statistics of China shows the full‐time equivalent of R&D personnel

in the recent 5 years has maintained an absolute increase of approxi-

mately 300,000 person‐year. The gross domestic product (GDP) share

of R&D expenditure increased from 1.78% in 2011 to 2.07% in 2015.

Government grants increased from 183.3 billion Yuan to 301.32 billion

Yuan. Premier Li Keqiang pointed out that the total investment in the

R&D of the entire society will reach 2.5% by 2020.

Current studies hold that technological innovation activities have

externalities. The spillover of knowledge and technology, opportuni-

ties for competitors to imitate are a given and has a significant effect

on the innovation enthusiasm of innovators to a certain extent and is

objectively unfavorable to the overall improvement of technology

innovation. Therefore, the government must take various incentive

measures to promote the main body of innovation and increase tech-

nology R&D. For example, the government also subsidizes R&D and

tax relief by setting up special grants. However, these subsidy policies

have not achieved the corresponding results. The reasons for this fail-

ure are the preference of government R&D grants, the phenomenon

of rent seeking, and the cheating of R&D subsidies by the recipients.

Maximizing the effectiveness of R&D grants remains an obstacle.

Hence, studying government subsidy and its impact mechanism on

innovation is important for promoting the development of regional

and enterprise innovation and giving government subsidy.

Domestic and foreign scholars have explored the relationship

between government R&D grants and innovation performance, but

the conclusions of empirical research are not uniform because of the

differences in research object, research background, and research

time. The main points of these studies fall into three categories.

Received: 26 February 2019 Accepted: 23 April 2019

DOI: 10.1002/pa.1973

J Public Affairs. 2020;20:e1973.

https://doi.org/10.1002/pa.1973

© 2019 John Wiley & Sons, Ltd.wileyonlinelibrary.com/journal/pa 1of10