How and When Do Subnational Institutions Matter for R&D Investment - Evidence from the Chinese Pharmaceutical Sector

Sep 4, 2026

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Drawing on new institutional economics and the innovation literature, this paper analyzes how subnational institutions shape corporate R&D investment in emerging economies, with China serving as the empirical setting. It highlights institutional quality mechanisms, including government deregulation and the effectiveness of local contracting institutions, and links them to corporate R&D intensity. The study also identifies a key contingency based on a firm’s country/ownership identity, showing stronger effects in indigenous firms and international joint ventures than in wholly owned foreign subsidiaries, informing future research.

LanguageEnglish

CategoryPresentations

FormatDOCX

Pages40

Reading Time14 min

AccessFree to download

Acknowledgements

Introduction

Research question and motivation

Institutional mechanisms and prior work

How and When Do Subnational Institutions Matter for R&D Investment? Evidence from the Chinese Pharmaceutical Sector Pei SUN School of Management, Fudan University 670 Guoshun Road, Shanghai 200433, China Email: sunpei@fudan.edu.cn Tel: +86 21 2501 1114; Fax: +86 21 6564 2411 Zhe QU* School of Management, Fudan University 670 Guoshun Road, Shanghai 200433, China Email: HYPERLINK "mailto:quz@fudan.edu.cn" quz@fudan.edu.cn Tel: +86 21 2501 1213 Zhixiang LIAO China Union Pay Data Services Co. Ltd. 1899 Gutang Road, Shanghai 201201, China Email: zxliao@cupdata.com * Corresponding author. Acknowledgements: We are indebted to Nitin Joglekar (the Departmental Editor) and the anonymous reviewers for their insightful and constructive comments. We also acknowledge the audience of our presentations on the Academy of International Business (AIB) Annual Conference in Vancouver, Canada, June 2014, and on the Strategic Management Society (SMS) 34th Annual International Conference in Madrid, Spain, September 2014, for their valuable comments on an early version of the paper. Pei Sun acknowledges financial supports from China’s National Nature Science Foundation (Grant number: 71672040) and the Shanghai Shuguang Scholar Program. Zhe Qu acknowledges financial supports from Shanghai Philosophy and Social Science Plan (2017BGL019). How and When Do Subnational Institutions Matter for R&D Investment? Evidence from the Chinese Pharmaceutical Sector Keywords: R&D; subnational institutions; innovation; emerging economies; China Abstract Drawing on new institutional economics and the innovation literature, this paper examines how subnational institutions can impact corporate R&D investment in emerging economies. The study further investigates a key contingency of this institutional effect: a firm’s country/ownership identity. Using China’s pharmaceutical sector as the empirical context, we find that the quality of subnational institutions, such as the degree of government deregulation and the effectiveness of local contracting institutions, has a significantly positive impact on corporate R&D intensity. Moreover, this institutional effect is more salient in indigenous firms and international joint ventures than in wholly owned foreign subsidiaries. This study serves to shed light on future research on how multifaceted subnational institutions shape innovation activities across different types of business organizations in emerging economies. Introduction Do institutions matter for corporate R&D investment? Conventional wisdom, which is informed by the literature on the appropriability of innovation ADDIN EN.CITE ADDIN EN.CITE.DATA [1-3], holds that a robust system of intellectual property rights (IPR) protection is critical to ensuring that firms make adequate investment in innovation activities ADDIN EN.CITE Allred2007The influence of patent protection on firm innovation investment in manufacturing industries[4, 5]1075-4253The influence of patent protection on firm innovation investment in manufacturing industriesJournal of International Management91-1092Allred, Brent B.Park, Walter G.1475479926172007934Elsevier147547992613Khoury2011Does institutional reform of intellectual property rights lead to more inbound FDI? Evidence from Latin America and the Caribbean1090-9516Does institutional reform of intellectual property rights lead

FAQs

How do subnational institutions affect corporate R&D investment?

The paper finds that the quality of subnational institutions—such as government deregulation and local contracting institution effectiveness—has a significantly positive impact on corporate R&D intensity.

What contingency determines when the institutional effect is stronger?

The institutional effect is more salient in indigenous firms and international joint ventures than in wholly owned foreign subsidiaries, indicating that country/ownership identity matters.

Why is the study focused on China’s pharmaceutical sector?

China’s pharmaceutical sector is used as the empirical context to test the relationship between subnational institutional quality and corporate R&D investment in an emerging economy setting.

Sep 4, 2026

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