The effect of government‐guided funds on target industries in development zones – Evidence from China

Abstract

The interplay between state‐led interventions and market‐driven forces has gained unparalleled prominence. This paper examines China's strategic use of government‐guided funds (GGFs) and their consequential impact on its national high‐tech zones (NHZs). Through an analysis of 1599 annual observations from 123 NHZs spanning 2007–2019, we reveal a compelling correlation between GGF investments and augmented industrial activity. Our findings indicate that NHZs benefitting from GGF allocations evidenced a significant 5.5% surge in industrial activity. Two underlying mechanisms drive this relationship. The leverage mechanism portrays GGFs as attractors of private social capital to tech‐centric ventures within NHZs. Meanwhile, the guidance mechanism underscores NHZs' strategic clustering of high‐tech sectors, amplifying benefits from shared resources and knowledge. Empirical analysis affirms both mechanisms, showing NHZs with robust social capital magnetism and tech clustering derive pronounced gains from GGF interventions. Our results carry practical implications for both policymakers and academicians, offering a nuanced understanding of the symbiotic relationship between fiscal strategies and industrial growth.