corporate innovation

trade policy

innovation networks

trade liberalization

intellectual property

technological change

innovation process

innovation systems

Journal of International Economics

This study proposes a novel channel through which trade liberalization may induce innovation through the reduction of trade policy uncertainties (TPU) in destination markets. To verify this linkage, we utilize the significant reduction of TPU engendered by China’s accession to the World Trade Organization (WTO) in 2001 as a quasi-natural experiment. We find that reduction in TPU significantly encourages firms’ patent application: firms in sectors with a larger reduction in uncertainty filed more invention patent applications after China’s WTO accession. We also find that firms’ innovation responses to TPU reduction vary by productivity, ownership, exporting status, and the irreversibility of investment.

Trade policy uncertainty and innovation: Firm level evidence from China’s WTO accession