Abstract
We study the role of Western CEO incentives in fostering the technological rise of China. Due to China’s quid pro quo policy, foreign multinationals face a trade-off between the short-term benefits of accessing China’s vast market and the long-term costs of transferring technology to China. Leveraging microdata on the global patent network, we construct novel measures to describe technological interactions between US firms and over 70 countries. We find that firms managed by myopic CEOs form more partnerships with China and transfer more technology to China. These firms subsequently lose R&D human capital to China and face more patenting competition from China, suggesting negative long-term consequences in innovation. The results reveal an important real effect of CEO incentives and highlight a novel channel behind China’s technological catch-up.
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