Abstract
This paper examines the paradoxical role of political measurements in accelerating or impeding indigenous technological innovation. State-led support can accelerate development under certain circumstances, but it often leads to market failures through the misallocation of resources. Additionally, even though some indigenous technological inventions generate long-term spillovers, they are often the least profitable to firms and therefore end up hindering technological growth through underinvestment and lack of support. To solve this problem, governments should target subsidies to spillover-rich industries instead of concentrating investment on politically linked firms. An analysis of China’s tendency to subsidize more firms connected to the party-state reveals how such policies can involuntarily limit long-term growth. This paper concludes that redirecting subsidies is crucial and that it is an optimal way to maximize shared benefits.
Keywords: State-Led Support, Market Failures, Targeted Subsidies
Copyright © 2025 Scholar of Tomorrow. All SoT articles are distributed under the attribution non-commercial, with no derivative license. This means that anyone is free to share, copy, and distribute an unaltered article for non-commercial purposes, provided the original author and source are credited.