Do China’s Special Economic Zones Increase Incentives to Invest in R&D?

China’s special economic zones (SEZs) have been established to foster business growth and innovation by improving the institutional context of specific sub-regional areas. We examine the effect of SEZs on the contribution of research and development (R&D) to the market value of firms located in these areas. The market value reflects investors’ expectations of future returns to R&D, providing crucial information for strategic investment decisions. Larger R&D contributions to the market value create stronger incentives for firms to invest in innovation. Empirical results suggest that the contribution of R&D to the market value increases through the SEZs program, particularly for R&D intensive firms. This suggests that regional policies, while increasing incentives to innovate, may widen the gap between less and more R&D intensive firms, potentially impacting competition and long-term growth.

Hussinger, Katrin and Lorenzo Palladini (2025), Do China’s Special Economic Zones Increase Incentives to Invest in R&D?, ZEW Discussion Paper No. 25-028, Mannheim.