The Patron and the Orchestrator: Imperfect Institutions and the Dual Influence of the State on Corporate R&D Investments

This article examines the dual influence of the state on corporate R&D investments in China, focusing on how local-level political connections impact the national government’s capacity to orchestrate innovation through strategic financial support. Building on the developmental state theory and the literature on the subnational institutional dynamics in China, we explore the tension associated with firms’ connections with local governments and the national government’s long-term innovation objectives. Analysis of data from a national survey of private firms conducted after the 2008 financial crisis reveals that while state support generally boosts R&D investments, local political connections can undermine this effect. Importantly, we find that export orientation mitigates this adverse impact. Our study highlights how local political connections spawn an institutional logic promoting insularity and learning inertia, jeopardising the state’s role as a facilitator of collective action. It further demonstrates how export orientation can usher in an institutional logic centred on learning and innovation, counterbalancing the negative effects associated with local connections, ensuring that state support effectively drives long-term competitiveness.