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Impact of Trade Policy Uncertainty on Firms’ Innovation

Author

Listed:
  • Kexin Zhan

    (Korea University)

  • Hongshik Lee

    (Korea University)

  • Shu-Yang Gan

    (Korea University)

Abstract

This study examines how rising trade policy uncertainty (TPU) mainly from the US–China trade war affected innovation at Chinese listed firms between 2015 and 2023. Using an industry level TPU index, we measure innovation quantity by patent applications and innovation quality by citation counts. Our results show that rising TPU is positively associated with both the number and the impact of patents, suggesting that uncertainty tends to drive firms toward more and higher-quality innovation. The heterogeneity analysis further indicates that higher TPU exposure is associated with greater innovation activity among small and medium-sized companies, non-state-owned enterprises, and inland companies. By combining firm-level panel data with a novel TPU measure and distinguishing between innovation quantity and quality, this research offers actionable insights for managers allocating R&D resources under uncertainty and for policymakers aiming to stimulate technological progress in volatile trade environments.

Suggested Citation

  • Kexin Zhan & Hongshik Lee & Shu-Yang Gan, 2026. "Impact of Trade Policy Uncertainty on Firms’ Innovation," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 30(1), pages 59-89, March.
    • Handle: RePEc:ris:eaerev:022414
    DOI: 10.11644/KIEP.EAER.2026.30.1.461
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    Keywords

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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