Policy Catering or Market Choice: Industrial Policy Consistency and Firm Exports

ABSTRACT During China's transformation from a quantity‐oriented to a quality‐oriented trading nation, industrial policy consistency (IPC) between central and local governments has been an important driving force for firm exports. We investigate this IPC by extracting information on the preferential industries mentioned in the Chinese 10th to 12th Five‐Year Plans (FYPs) and empirically analyze the relationship between IPC and firm exports on the basis of Chinese firm‐level data from 2001 to 2015. The results indicate that IPC expands the firms' export scales but reduces the quality of products exported. This phenomenon is driven primarily by increasing subsidy reliance, intensifying excessive market competition and weakening innovation incentives. The heterogeneity analysis indicates that IPC has a more profound effect on the export outcomes of state‐owned enterprises, large firms, pillar industries and regions facing high levels of official promotion pressure. We further find that comparative advantages can relatively mitigate the decline in quality caused by policy consistency. Our findings have important policy implications for coordinating regional industrial policies and improving export competitiveness.