Agglomeration, recombinant innovation and the role of market reforms in a transitioning China

This paper estimates a knowledge production function to study the effects of local spillovers on the patenting activity and new innovation sales of Chinese firms during a period marked by rapid economic reform. We show that local spillovers expected to arise between co-located firms in related industries encourages firm innovation outcomes, especially among firms that diversify their core competencies into new related (versus unrelated) technological domains. Exploiting the gradual and spatially uneven economic transitioning process as a quasi-natural experiment, we find that the positive effects of relatedness on firm innovation are significantly larger in size following more intense market-oriented reforms. The results are potentially relevant for policy-makers in transitioning economies, highlighting for the first time the importance of firms' own diversification process and market-oriented reforms for encouraging innovation-enhancing technological related spillovers.

Automated summary

This paper investigates the effects of local spillovers on the patenting activity and new innovation sales of Chinese firms during a period of rapid economic reform. The study shows that local spillovers between co-located firms in related industries encourage firm innovation outcomes, especially for firms that diversify into new related technological domains. The results also highlight the importance of market-oriented reforms in encouraging innovation-enhancing technological related spillovers.