External technological sources, subsidies and firm productivity in China

Productivity is a key factor that differentiates firm competitiveness. To promote productivity, the internal source, research and development expenditure, is undoubtedly a primary driver, while various external sources are also critical. This study examines the determinants of productivity in Chinese firms, focusing on external technological sources, especially policy-induced factors, including tariff-free imported intermediates, forced technology transfer through international joint ventures (IJVs) and production subsidies. Based on firm–customs matched data for 2001–2007, we find that the technologies embodied in imported intermediates and IJVs in technology-intensive sectors positively influence productivity. Production subsidies also have a significant and positive relationship with productivity. Overall, the above findings suggest the effectiveness of policy instruments. Further heterogeneous analyses highlight the differences in productivity effects by isolating the above factors individually in various dimensions.