The Power and Pitfalls of Techno-Industrial Policy: Evidence from China

I study how industrial policy shapes innovation by examining China's Strategic and Emerging Industries (SEI) initiative (2010-2018), a large-scale fiscal intervention targeting frontier technology sectors. Employing a staggered difference-in-differences design with city-industry-level patent data, I uncover three key findings: (1) While patent quantity surged by 184%, quality metrics showed minimal improvement; (2) The quantity gains came at a 14% decrease in patent output from untreated sectors, revealing sectoral displacement instead of crowd-in effects; (3) Cities that adopted path-dependent targeting (selecting sectors with pre-existing innovation advantages) achieved over twice the patent growth rates of their counterparts, yet the persistent stagnation in quality metrics exposes its scaling trap. These findings reveal a paradox in China's development model: while achieving unprecedented success in scaling innovation quantity, the nation has yet to realize comparable quality gains - a critical gap as it transitions from 'made' to 'created in China'.