China's rising IQ (Innovation Quotient) and growth: Firm-level evidence

This paper examines whether the rapidly growing firm patenting activity in China is associated with productivity growth, and whether this association changes after the introduction of patent subsidy programs and differs across ownership types. We first build a unique dataset uniting detailed firm balance sheet information with firm patent data for the period 1998-2007. We find strong evidence that both within-firm increases in patent stock and initial patenting event are associated with increases in total factor productivity. Patent subsidy programs sequentially implemented across Chinese provinces weaken this positive association over time. State-owned enterprises (SOEs) have higher productivity-patenting elasticities than private firms, especially after the SOE reforms. Exploring regional variations in the perceived quality of intellectual property rights (IPR) protection shows an inverted U-Shaped relationship between IPR protection and innovation, consistent with the literature.