A scientific paper titled „Foreign Divestment – Crisis or Chance for China’s Innovation Edge?” by project member Holger Görg (IfW Kiel) and co-authors Guopei Fang (Huazhong University, China), Aoife Hanley (IfW Kiel) and Haiou Mao (Huazhong Agriculture University, China) is forthcoming in the journal China & World Economy.
The paper explores the consequences for innovation of foreign divestment in China, i.e. ownership transitions of foreign affiliates to Chinese owners. Far from crippling innovation, divestment has sparked an increase in patenting and other innovation measures in the divested affiliates. The authors suggest that this can be explained by an effort by the new Chinese owners to reduce their tax burden. In a supplementary analysis the authors also find that affiliates located inside Technology Parks applied for more patents, paid less tax and received a higher subsidy than divested affiliates outside such parks.