Government R&D subsidies, intellectual property rights protection and innovation

Purpose This paper aims to investigate whether a complementary effect exists between government R&D subsidies (GRSs) and intellectual property rights (IPR) protection on innovation performance in the pharmaceutical manufacturing industry in China. This paper also attempts to understand whether this complementary effect is significantly different across China’s eastern, central and western regions. Design/methodology/approach The study sample comprised 28 provinces involved in the pharmaceutical manufacturing industry in China from 2003 to 2014. Ordinary least squares was used to test the complementary effects of GRSs and IPR protection on innovation performance. The seemingly unrelated estimation test was also applied to ascertain whether differences existed between the eastern and western regions. Findings A complementary effect between GRSs and IPR protection in terms of improving the innovation of pharmaceutical manufacturers was found to exist only in eastern and western regions. There was no significant difference in the complementary effect between GRSs and IPR protection in terms of improving innovation among the three regions. Without considering the interaction effect of GRSs and IPR protection, the GRSs were negatively associated with innovation in the eastern region, but positively related to the innovation in central region. Originality/value This study contributes to the literature on government policies and innovation by incorporating the interaction effect of GRSs and IPR protection on innovation in the context of a high-tech industry (pharmaceutical manufacturing) in an emerging economy (China). It also explores the internal differences in the influence of this complementary effect on innovation in an emerging economy, enriching the institution-based view.