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Relationship and Boundary Between Market and Government in Corporate Innovation
Li Gang and Ma Limei
Institute of Industrial Economics (IIE), the Chinese Academy of Social Sciences, Beijing, China
Abstract: It is the view of this paper that both market and non-market mechanisms
can stimulate corporate innovation and have their respective areas of application. As a
major developing country, China should create a national innovation policy system to
coordinate these incentives in order to promote economic transition and upgrade through
corporate innovation. Innovation policies are determined by a country’s technology level.
The premise for most advanced economies to follow market-based incentives is a foundation
of early-stage non-market policies, as their governments frequently resorted to non-market
means such as state-owned enterprises in the early stage of development. This paper also
concludes that technological uncertainty can well describe the technological characteristics
of industries. For industries with less technological uncertainty, non-market means are more
likely to succeed. Lastly, this paper employs the dimensions of both technology level and
industrial technology characteristics for a quantitative analysis on the scope of industries to
which the two incentive mechanisms are applicable, divides them into quadrants in order to
discuss the boundary between market-based and non-market incentives, and explore ways
to achieve effective interplay between government and market.
Keywords: innovation incentive mechanism, technology level, technological uncertainty
JEL Classification: H54, L16, O32
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