Place-based policies and regional innovation: evidence from western development in China

Innovation is the key to economic development. This study used the difference-in-difference model to examine the impact of the Chinese Western Development Strategy (WDS) implemented in 2001 on regional innovation. The results showed that the WDS has not effectively promoted regional innovation, and this effect has strengthened annually since the second year. Regions with higher regional innovation suffer more from the policy inhibiting effect, which indicates that the policies of the WDS have not been fully utilized. A heterogeneity analysis demonstrated varying effects on cities with different administrative levels. Provincial capital cities have an absorbing effect on non-provincial capital cities. The mechanism analysis shows that the WDS has aggravated local fiscal imbalances and fiscal preference in valuing investments and neglecting people’s livelihoods. Both these factors appear as chain mediation effects. Therefore, high-quality development in the western regions requires the strengthening of the regional innovation environment and a suitable institutional path to effectively enhance regional innovation capabilities.