When do state-owned enterprises innovate? The moderating role of pro-market institutions

I explore how pro-market institutions moderate the relationship between private or state ownership and innovation. Due to political and social connections, state-owned enterprises (SOEs) have several advantages over private-owned enterprises (POEs) in China, but I hypothesise that these advantages wane when institutional environments prioritise market competition, rule of law, and the rewards to profitable enterprise. Using data from the World Bank's Enterprise Survey in China, the results suggest that POEs are more innovative than SOEs but only in market-oriented provinces. In provinces that are not market-oriented, SOEs are more innovative than POEs.