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Trade policy uncertainty and innovation: Evidence from China

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  • Coelli, Federica

Abstract

This paper analyzes the effect of resolving trade policy uncertainty on innovation in China from 1990 to 2007. Exploiting exogenous and heterogeneous exposure to the elimination of U.S. tariff uncertainty, together with detailed innovation data, the analysis shows that reducing tariff uncertainty generated economically and statistically significant increases in innovation. This increase represents actual innovation, and not just more patent filings. The timing of the response is heterogeneous: lower-quality innovations respond quickly, while higher-quality and higher-opportunity-cost innovations respond more gradually. Innovation increases along three margins: entry into new technologies, patents with broader technological scope, and innovation within firms’ existing technological portfolios. More exposed sectors experience larger increases in first-time patenting firms. Finally, the increase in innovation is at least in part driven by exports to the US.

Suggested Citation

  • Coelli, Federica, 2025. "Trade policy uncertainty and innovation: Evidence from China," Journal of International Economics, Elsevier, vol. 158(C).
    • Handle: RePEc:eee:inecon:v:158:y:2025:i:c:s0022199625001278
    DOI: 10.1016/j.jinteco.2025.104170
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    Keywords

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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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