Intellectual Property Protection and Firm Innovation: Evidence from a Natural Experiment in China
35 Pages Posted: 16 Apr 2020 Last revised: 4 May 2020
Date Written: May 3, 2020
In this study, we examine how the national intellectual property (IP) model cities awarded by the National Intellectual Property Administration affect firm innovation activities in China. The difference-in-difference regression with a matched sample indicates that the recognition of IP model cities increases firm innovation output and productivity, and the primary results are robust to alternative model specifications and variable definitions. Further analyses show that the increased firm innovation output is driven by local government support in fiscal and taxation policies. In detail, high-tech firms benefit from government subsidies, whereas non-high-tech ones are entitled to tax returns. However, subsidies for the former slightly crowd out those for the latter, and only high-tech firms have invested in subsidies for research and development activities. Our findings highlight the significant role of government IP protection in promoting firm innovations in China.
Keywords: Intellectual property, Government policy, Firm innovation, China
JEL Classification: O31, O34, O38
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