Key equipment and technology imports and firm productivity

We exploit China’s 2007 policy promoting the import of key equipment and technology as an exogenous shock and examine its effects on firms’ total factor productivity (TFP). Drawing on a merged dataset combining the Chinese Annual Survey of Industrial Firms and patent filings for the 2003–2009 period, we implement a difference-in-differences strategy to quantify the policy’s impact. We find that the policy led to a statistically and economically significant 1.11% increase in treated firms’ TFP relative to untreated firms during the sample period, and this result remains highly robust across a wide range of empirical checks. A mechanism analysis reveals that the policy primarily relaxes firms’ financial constraints and strengthen their capacity for innovation, especially technological innovation. These mechanistic channels contribute to an observed improvement in productivity. Moreover, the heterogeneity analysis indicates that the productivity effects of the policy are greater among medium and large-sized firms, state-owned and foreign firms, non-superstar firms and firms in financially underdeveloped regions.