Mapping US-China Technology Decoupling, Innovation, and Firm Performance

Abstract

Based on the combined patent data from the U.S. and China, we quantify the technology decoupling and dependence between the two countries. The first two decades of the 21st century witnessed a continuing increase in technology integration (or less decoupling), but China’s technology dependence on the U.S. increases (decreases) during the first (second) decade. A panel VAR analysis suggests that a higher level of decoupling in a given technology field predicts more dependence of China on the U.S., which in turn predicts less decoupling. Decoupling is associated with more patent outputs in the given sector in both countries, lower firm productivity and valuation in China, but no significant impact on U.S. firms. Finally, China’s innovation-oriented industrial policies are associated with both more integration with and less dependence on U.S. technology down the road, trading off the inherent conflict between the two main policy objectives of promoting indigenous innovation versus enhancing firm competitiveness.

Keywords: Technology Decoupling, International Economic Order and Integration, Innovation, R&D, Patent, Industrial Policy

JEL Classification: O31, O33, F02, O25