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We study how intellectual property right (IPR) protection and ownership type affect innovation singly and jointly in China. We find that stronger local IPR protection is positively related to firms’ R&D investments and innovation. Private sector firms invest more in R&D and innovate more than state-owned enterprises (SOEs), and this effect is more notable in regions with high IPR protection standards. We see the same effect in privatizations and when using instrumental variables. Our results support theoretical arguments that IPR protection strengthens firms’ incentives to innovate and that private sector firms are more sensitive to IPR protection than SOEs.