Cross-Border Institutions and the Globalization of Innovation

Abstract

We identify strong cross-border institutions as a driver for the globalization of innovation. Using 67 million patents from over 100 patent offices, we introduce novel measures of innovation diffusion and collaboration. Exploiting staggered bilateral investment treaties as shocks to cross-border property rights and contract enforcement, we show that signatory countries increase technology adoption and sourcing from each other; they also increase R&D collaborations. These interactions result in technological convergence. The effects are particularly strong for process innovation, and for countries that are technological laggards or have weak domestic institutions. Increased innovation contracting and exchange of capital are the key channels.

Keywords: Innovation, technology diffusion, globalization, cross-border institutions, bilateral investment treaties

JEL Classification: F21, F61, G18, G38, K33, O31, O33