Nav: Home

China's innovation future depends on intellectual property rights protection

January 04, 2017

As China's working age population shrinks and cheap labour dries up, the country's leaders have been keen to stress the urgency to move from an economy based on investment and heavy industry to a sustainable, innovation-led one.

According to a new paper by Lily Fang, INSEAD Associate Professor of Finance, forthcoming in the Review of Financial Studies, Intellectual Property Rights Protection, Ownership, and Innovation: Evidence from China, the success of these efforts will depend on building more robust institutions.

"Until now, China has achieved the fastest growth in history despite having poor legal and financial institutions. It has also become one of the most prolific patent filers in the world," said Fang. "This has led many to question whether China is an exception to the rule that effective legal and financial institutions lay the foundation for stronger economies. However, we find that it is not," she added.

Her study used China's privatisation drive of 1995-2005 to identify how private ownership and intellectual property protection contributed to innovation and importantly, how varying levels of intellectual property protection across China affected it.

Examining firms pre and post-privatisation, Fang and her colleagues found that innovation measured by patents filed, increases significantly after firms are privatised. On average, firms' patent stock increases 200-300 percent in the five years following privatisation. But, crucially, the increase in innovation is significantly larger in cities with high intellectual property protection than in cities with low protection.

Privatisation alone has essentially no effect on innovation in places where protections are weak. But just a small increase in intellectual property protection leads to large gains in post-privatisation innovation. For example, Fang shows that a one standard-deviation increase in the local intellectual property protection score nearly quadruples the post-privatisation increase in patent stock.

Further solidifying the results, Fang found that in addition to quantity, the quality of such patents was higher than that of state-owned firms. They find evidence that patents of these private sector firms are cited more often internationally than patents of state-owned firms, which shows much higher quality.

"The letter of the law is consistent with international standards but in practice, there is evidence that China has a poor record in enforcement and significant differences exist across regions in the interpretation and enforcement of intellectual property law," said Fang.

"While China has demonstrated that it is capable of achieving incredible growth without strong legal enforcement of intellectual property, as it advances to the technology frontier, it will have to develop a stronger legal system to support the innovation it so desperately wants," she added.
-end-
About INSEAD, The Business School for the World.

As one of the world's leading and largest graduate business schools, INSEAD brings together people, cultures and ideas to change lives and to transform organisations. A global perspective and cultural diversity are reflected in all aspects of our research and teaching.

With campuses in Europe (France), Asia (Singapore) and the Middle East, INSEAD's business education and research spans three continents. Our 145 renowned Faculty members from 40 countries inspire more than 1,400 degree participants annually in our MBA, Executive MBA specialised master's degrees (Master in Finance, Executive Master in Consulting and Coaching for Change) and PhD programmes. In addition, more than 11,000 executives participate in INSEAD's executive education programmes each year.

In addition to INSEAD's programmes on our three campuses, INSEAD participates in academic partnerships with the Wharton School of the University of Pennsylvania (Philadelphia & San Francisco); the Kellogg School of Management at Northwestern University near Chicago; the Johns Hopkins University/SAIS in Washington DC and the Teachers College at Columbia University in New York; and MIT Sloan School of Management in Cambridge, Massachusetts. In Asia, INSEAD partners with School of Economics and Management at Tsinghua University in Beijing and China Europe International Business School (CEIBS) in Shanghai. INSEAD is a founding member in the multidisciplinary Sorbonne University created in 2012, and also partners with Fundação Dom Cabral in Brazil.

INSEAD became a pioneer of international business education with the graduation of the first MBA class on the Fontainebleau campus in Europe in 1960. In 2000, INSEAD opened its Asia campus in Singapore. And in 2007 the school began an association in the Middle East, officially opening the Abu Dhabi campus in 2010.

Around the world and over the decades, INSEAD continues to conduct cutting edge research and to innovate across all our programmes to provide business leaders with the knowledge and sensitivity to operate anywhere. These core values have enabled us to become truly "The Business School for the World.

INSEAD's MBA programme is ranked #1 by the Financial Times in 2016.More information about INSEAD can be found at http://www.insead.edu/.

INSEAD

Related Innovation Articles:

Shaping the future of health innovation
Future advances in healthcare will be aided by a new £10 million facility -- the National Institute for Health Research Innovation Observatory based at Newcastle University, UK.
Building on the foundations of innovation
The new issue of Technology and Innovation has a special section on the 2016 NAI Conference, including articles on gender and bias in science, the history of the National Academy of Inventors, alternative rubber crops, and the next industrial revolution.
What is innovation, and how can we awaken its dormant traits and cultivate them?
While education may not be able to create innovative traits in individuals, education may improve the ability of individuals to utilize the traits they already possess.
LA BioMed's 4th Annual Innovation Showcase
The Innovation Showcase will be attended by over 300 entrepreneurs, investors, executives from biotech and pharma medical devices companies, legal experts, service providers, prominent scientists, and technology transfer personnel from premier academic institutions.
Accelerating low-carbon innovation through policy
Will innovative technologies contribute to mitigating climate change? Learn about the successes and failures of low-carbon technology and how policy instruments help and hinder technological innovation.
The next Horizon: Strategies to promote European competitiveness in innovation
EU-LIFE, the alliance of research centers in life sciences to support and strengthen European research excellence released today a statement with its recommendations for next framework program for Research & Innovation, FP9.
Can we put a price on healthcare innovation in cancer?
Is there evidence that the money spent on innovation 'for the cure' actually benefits cancer patients?
Alzheimer's treatment innovation pipeline is building
A new analysis of the Phase II Alzheimer's drug pipeline, conducted by ResearchersAgainstAlzheimer's, revealed 57 new Alzheimer's drugs.
Business investment in innovation pays off
Firms need to invest in innovation in order to create new technologies and move the economy forward, according to new research from the University of Houston.
Technology and innovation not driven by climate change
Middle Stone Age of southern Africa is a period of dramatic innovation in subsistence, cultural and technical practices.

Related Innovation Reading:

Best Science Podcasts 2019

We have hand picked the best science podcasts for 2019. Sit back and enjoy new science podcasts updated daily from your favorite science news services and scientists.
Now Playing: TED Radio Hour

Anthropomorphic
Do animals grieve? Do they have language or consciousness? For a long time, scientists resisted the urge to look for human qualities in animals. This hour, TED speakers explore how that is changing. Guests include biological anthropologist Barbara King, dolphin researcher Denise Herzing, primatologist Frans de Waal, and ecologist Carl Safina.
Now Playing: Science for the People

#SB2 2019 Science Birthday Minisode: Mary Golda Ross
Our second annual Science Birthday is here, and this year we celebrate the wonderful Mary Golda Ross, born 9 August 1908. She died in 2008 at age 99, but left a lasting mark on the science of rocketry and space exploration as an early woman in engineering, and one of the first Native Americans in engineering. Join Rachelle and Bethany for this very special birthday minisode celebrating Mary and her achievements. Thanks to our Patreons who make this show possible! Read more about Mary G. Ross: Interview with Mary Ross on Lash Publications International, by Laurel Sheppard Meet Mary Golda...