The role of social ties in spreading innovation: Evidence from alien merchant guilds in China

This paper examines how social ties shape the diffusion of innovation across regions. We focus on social connections formed through participation in Chinese alien merchant guilds, which consist of merchants from the same origin province conducting business in a different host province. Using data on patent citations linked to member firms of inter-provincial guilds, we show that guild establishment significantly increases inter-provincial knowledge flows from the host to the origin province. The effect is stronger and more immediate for knowledge outflows than for knowledge inflows, consistent with the hypothesis that knowledge dissemination is less costly than acquisition. We examine three channels: inventor mobility, patent collaboration, and social interactions, and the empirical evidence is most consistent with social interactions as a central channel. These increased knowledge flows substantially raise innovation output among origin-based members, and also benefit origin-based firms that cite patents of host-based members by improving their access to knowledge generated by host-based members. The results highlight the critical role of external knowledge access through social ties in fostering innovation diffusion and progress.