Restrictive Industrial Policies and Corporate Productivity: Evidence From China's Supply‐Side Structural Reform

ABSTRACT This study examines the impact of restrictive industrial policies on corporate Total Factor Productivity (TFP), shifting the focus from traditional supportive policies. Using China's 2016 Supply‐side Structural Reform Policies (SSSRP) in the coal and steel industries, we employ difference‐in‐differences (DID) approaches to identify the causal effect of these policies on firm productivity. Our findings challenge the prevailing view that restrictive policies merely impose burdens on firms; instead, they incentivize efficiency improvements, cost reductions, and resource optimization, ultimately enhancing TFP. Beyond direct firm‐level effects, this study explores industrial chain transmission, showing how restrictive policies influence productivity in upstream and downstream sectors. Additionally, we analyse spatial heterogeneity, revealing that policy effects vary by regional economic conditions and institutional structures. By integrating theoretical modelling with empirical evidence, this study extends the discourse on industrial policy and provides insights into how restrictive measures can drive productivity gains. The findings underscore the importance of considering industrial linkages and regional differentiation in policy design to balance structural adjustments with long‐term economic efficiency.