U.S. Innovation and Chinese Competition for Innovation Production

Publish Date: Nov 4, 2018    Last Update: Nov 4, 2018

Abstract

We propose that competitive shocks from China impact U.S. innovation through two margins: the markets for innovation and for existing products. Using Chinese data, we map each industry to province Internet penetration levels using geographic agglomeration data. The resulting industry-year database indicates the ability of Chinese firms to acquire knowledge globally and compete in the market for intellectual property production. Increases in provincial Chinese Internet penetration are followed by sharp reductions in R&D investment and subsequent patents for U.S. firms, and increased patenting by Chinese firms. The new Chinese patents also cite the patents of treated U.S. firms at a high rate, consistent with increased intellectual property competition. In contrast, U.S. firms with fewer growth options and more tangible assets tend to increase R&D and patenting activity. Overall, both competition in intellectual property by Chinese firms and the asset competition of U.S. firms influence U.S. firm innovation.

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