Can Government Subsidies Promote the TFP of Enterprises? The Mediating Effect of R&D Decisions

This article empirically analyses the effect of government subsidies on total factor productivity (TFP) based on the data of listed manufacturing companies in China. The results indicate that government subsidies increase total productivity directly as well as indirectly by increasing R&D investment. The positive effect of government subsidies on TFP is higher in non-state-owned enterprises (non-SOEs) than in state-owned enterprises (SOEs), higher in central SOEs than local SOEs and higher in enterprises with lower rather than higher TFP. Furthermore, the mediating effects of R&D decisions also differ among different enterprises. Therefore, the government should implement differentiated subsidy policies to promote enterprises’ TFP.