Local market, central government support, and local governments’ homegrown development strategy in high-tech industries

Abstract

The homegrown strategy (i.e. supporting domestic enterprises) in the high-tech manufacturing sector is very important for developing countries’ sustainable growth and economic security. In reality, only some local governments adopt the homegrown strategy in high-tech industries while others not. This paper attempts to explore factors affecting local governments’ adoption of the homegrown strategy in the high-tech sector. It argues that under the decentralized fiscal system and relative performance–based cadre evaluation system, local development strategy choices in a high-tech industry are significantly shaped by two factors: (1) the size of the local high-tech product market in the early stage of this industry’s development and (2) the support for domestic enterprises from the central government. Localities with a large local high-tech product market and support from the center are more likely to adopt the homegrown strategy. Case studies on eight Chinese sub-provincial localities’ chipmaking industries confirm these hypotheses.