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Quantitative Assessment on Frictions in Technology Market

Zhang, Yiran (2021): Quantitative Assessment on Frictions in Technology Market.

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Abstract

In this paper, I first document several novel stylized facts from Chinese patent transaction data matched with manufacturing firm data. A key finding is that Chinese patent market is significantly less developed than the U.S. To understand the causes and consequences, I build a model that endogenizes firm R&D investment, patent trading decision and productivity growth. I structurally estimate the model and find the following two main results. First, Chinese patent market plays a small role in growth. It only accounts for 5% of China’s GDP growth rate, as opposed to 17% in the U.S. Second, I evaluate the importance of three frictions calibrated to Chinese patent market: search cost, fixed transaction cost and information asymmetry. Search cost turns out to be the main friction to explain the gap of patent market size. If search cost was reduced to the US level, China’s productivity growth would increase by 0.16 percentage points.

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