Abstract
We use a difference-in-difference research design to examine the effect of an exogenous shock to a firm’s R&D investment from Chinese regulations regarding technology exports revised in 2008. We document that these technology export restrictions (TERs) decrease a firm’s R&D investment. Specifically, the TERs reduce corporate R&D investment by 114 percent compared with that by an average firm in the sample. Additional analysis suggests that the TERs also reduce outbound direct investment and the number of firms’ patent applications. Overall, TERs prevent firms from investing in innovation projects. Hence, relaxing TERs would enhance corporate R&D investment and promote general economic development.
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