Intellectual Property Enforcement, Exports and Productivity: Evidence from China

We study how provincial-level enforcement of intellectual property rights (IPRs) affects Chinese firms’ decisions regarding exit, export, and the channels through which to receive technology transfer. Our findings provide insights into how variations in IPRs enforcement alter productivity. Our model combines the standard theory of heterogeneous firms with the endogenous choices of those firms concerning how they absorb international technologies through imitation or licensing. We show that, in this setting, the exit and export cutoff productivities differ from those in the standard environment, leading to a different sorting mechanism. We also predict that stronger IPRs change the decisions firms make concerning their mode of technology transfer, further altering their productivity and export possibilities. Empirical tests based on a comprehensive dataset of Chinese firms from 2000 to 2006 support the model predictions.