Adopting Knowledge From Reverse Innovations? Transnational Patents and Signaling From an Emerging Economy

Abstract

Is there knowledge adoption of innovations from emerging economies? We theorize that, to help overcome information asymmetry across countries, granting patents to technology in the emerging economy of China can serve as a signal of technology potential and market opportunity to enhance technological knowledge adoption in a developed economy such as the United States. The effect may be greater in a complex technology sector with high information asymmetry than in a discrete technology sector, and in regions with less developed market intermediaries, where information asymmetry is high. Our difference-in-differences estimates using 4226 China–U.S. patent dyads and comparable U.S. patents support our hypotheses.

Keywords: reverse innovation, knowledge adoption, patent signaling, information asymmetry, emerging market

JEL Classification: O19, O31, O32, O34, F23