Innovation or imitation? The role of intellectual property rights protections

We study how uncompensated research and development (R&D) spillovers the leakage of proprietary information through imitation or theft affect firms investment decisions. Using variation in property rights protections across different regions within China we find that (1) uncompensated spillovers are greater in regions with weaker property rights, (2) such spillovers are associated with lower RandD expenditures, and (3) the latter is exacerbated in low property rights regimes. In addition to identifying a specific channel through which legal protections affect incentives for innovation and RandD, our results support arguments in the literature that the enforcement of property rights affects firm investment and growth. All rights reserved, Elsevier