Innovation Spillovers from Trade Shocks

Abstract

Do trade shocks affect non-manufacturing industries? Using China’s entry into the World Trade Organization in 2001 as a trade shock and an identification strategy based on manufacturers and non-manufacturers with common shareholders, I show that non-manufacturing firms become more innovative as a response to the shock. That is, they have more patents and are more likely to begin patenting. I find that my results rely on shareholders having large enough stakes in both firms and also on the presence of shared managers.

Keywords: innovation spillovers, common ownership, trade shocks

JEL Classification: F1, G3