Pre-Grant Patents and Innovation Diffusion

Are pre-grant patents effective forward-looking signals of global innovation diffusion? Patent grants are important legal milestones, but information diffusion about the underlying technologies occurs at the time patents are published. As the innovation literature rarely studies this distinction, I address this question using pre-grant patent flows across countries, sectors, and industries over time. This allows me to separately identify timing effects on diffusion and those that are running through either innovation or trade channels. At country level, results show that the innovation channel creates larger and more persistent total factor productivity (TFP) gains and stock price responses. This confirms that international technology spillovers originate from the expansion of the global stock of knowledge rather than strategic changes in trade intensity between home countries and their partners. A one–standard-deviation foreign pre-grant patent shock raises manufacturing-sector TFP by about 1.5%, and the R&D capital stock rises by roughly 0.4% with a one-year delay. This reflects their forward-looking nature, which prompts resource reallocation in anticipation of future productivity gains. These gains are especially pronounced in countries which manufacturing sectors that are more R&D-intensive. At the industry level, the results show that countries with more value-added–intensive industries are better able to translate pre-grant patents citations into higher labour productivity gains.