Government Subsidies and Sustainable Development in Manufacturing: Evidence from Product Quality and Production Efficiency

This study investigates the role of government subsidies in fostering sustainable development among 69,525 Chinese manufacturing companies, with a focus on product quality and production efficiency. We examine how subsidy effects vary across companies with different ownership types, export orientations, and market competition intensities. Our results indicate that subsidies generally enhance both product quality and production efficiency, albeit with a time lag. These improvements are primarily driven by increased R&D investment and the adoption of upgraded equipment, contributing to sustainable operational practices. We find that subsidies are particularly effective in promoting sustainability outcomes in non-state-owned and non-exporting companies, though their suitability remains context-dependent. Specifically, subsidies more significantly improve product quality in low-competition, export-oriented companies, while they exert a stronger influence on production efficiency in companies operating in highly competitive environments. For management, aligning government subsidies with corporate strategy is crucial to enhancing product quality and efficiency. For policymakers, the heterogeneous treatment effects support moving away from one-size-fits-all grants toward tiered support that channels R&D-intensive subsidies to leading industries and efficiency-oriented subsidies to highly competitive industries. These findings directly inform China’s Dual-Carbon strategy and offer an exportable evaluation framework for emerging economies seeking to align industrial policy with the UN Sustainable Development Goals.