Too Much of a Good Thing? The Impact of Government Subsidies on Incubator Services: Empirical Evidence from China

Abstract

In this paper, we investigate the impact of government subsidies on incubation services in incubators. Based on the use of the Generalized Propensity Score Matching (GPSM) method to effectively overcome the endogeneity problem, we find that there is an inverted U-shaped relationship between government subsidies and incubation services, and thus there is an optimal intensity of government subsidies. The inflection point of the inverted U shape for basic services is much smaller than that for value-added services and investment services. With a wider range of government subsidies, incubators will tend to provide better value-added and investment services rather than basic services. The inverted U-shaped relationship remains robust over time, and the range of appropriate subsidies to promote incubation services is tightening. The conclusions of this paper provide empirical evidence on the effectiveness of government subsidies in incubators, which is conducive to developing more effective industrial policies for future governments.