Abstract
This paper employs a structural innovation model to study the process of indigenous innovation in China and the role of industry relatedness. To better take into account China’s transitioning economy context, I further test to what extent the relationship between relatedness and firms’ innovation process is influenced by the relaxation of foreign ownership controls, an arguably exogenous shock. Controlling for selection, simultaneity and unobserved heterogeneity, the results show that firm RD (ii) recombine knowledge from related industries in order to bring forth new, proprietary ideas, processes or concepts; and (iii) help solve process or organizational problems faced in related industries.
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