Geopolitical Uncertainty Stifles Corporate Innovation and Growth

44 Pages Posted: 19 Jan 2021 Last revised: 13 May 2021

See all articles by Ruchith Dissanayake

Ruchith Dissanayake

Queensland University of Technology - School of Economics and Finance

Yanhui Wu

Queensland University of Technology - School of Economics and Finance; Financial Research Network (FIRN)

Date Written: May 13, 2021

Abstract

We use a narrative method to construct an uncertainty measure based on transnational geopolitical tensions that is plausibly uncorrelated with the existing economic conditions. Increases in geopolitical uncertainty cause a significant reduction in R&D expenditure and patenting activity – measured using patent numbers, citations, and private value – for a sample of publicly listed firms in the US. In the cross-section, the impact of geopolitical uncertainty on innovation and output growth is greater for firms in industries with high innovative competition and financial market frictions. We show that our results are unlikely to be driven by omitted variable bias or measurement error.

Keywords: Geopolitical Risk, Innovation, Patenting, R&D, Patent Value, Geopolitics, Economic Growth

JEL Classification: G32, O31, O32, E22

Suggested Citation

Dissanayake, Ruchith and Wu, Yanhui, Geopolitical Uncertainty Stifles Corporate Innovation and Growth (May 13, 2021). Available at SSRN: https://ssrn.com/abstract=3722797 or http://dx.doi.org/10.2139/ssrn.3722797

Ruchith Dissanayake (Contact Author)

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

HOME PAGE: http://www.rdissanayake.com

Yanhui Wu

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
45
Abstract Views
238
PlumX Metrics