Abstract
ABSTRACT This study investigates the impact of trade policy uncertainty on firm R&D investment in China, motivated by the recent trade friction between China and the US and the associated rise in trade policy uncertainty. Using textual analysis of annual reports of A-share listed firms, we construct firm-level measures of trade policy uncertainty and assess its effects on R&D investment. We find that higher trade policy uncertainty increases R&D investment. The effect is driven by firms’ desire to substitute away from threatened foreign inputs by strengthening their innovation. Given the increasingly challenging and complex external environment, this study holds significant implications for innovation policy-making and how firms respond to uncertainty.
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