Firm performance and knowledge spillovers from academic, industrial and foreign linkages: the case of China

Firm performance may be enhanced by linkages with academic institutions, other firms, and foreign markets that confer knowledge spillovers as well as internal R&D that creates firm-specific knowledge. In particular, firm productivity and innovation may be enhanced by positive externalities from knowledge and technology produced by universities and research institutions (URIs) and diffused to the domestic economy. Productive contributions from such linkages might be particularly expected in China, where policy measures have explicitly supported and facilitated connections between URIs and firms to stimulate economic development and competitiveness. In this paper, we measure the performance impact of such knowledge spillovers in Chinese firms by using a variety of specifications, estimators, and robustness checks, including an “instrumental variable” specification that controls for endogeneity. We find more patent activity in Chinese firms with URI connections and enhanced firm productivity particularly from linkages with research institutions (RIs). Introduction of new products, processes, and new businesses is also positively associated with linkages with research institutions, as well as with linkages with other firms.