Impact of Trade Policy Uncertainty on Firms’ Innovation

Kexin Zhan, Hongshik Lee and Shu-Yang Gan
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Kexin Zhan: Korea University
Hongshik Lee: Korea University
Shu-Yang Gan: Korea University

East Asian Economic Review, 2026, vol. 30, issue 1, 59-89

Abstract: This study examines how rising trade policy uncertainty (TPU) mainly from the US–China trade war affected innovation at Chinese listed firms between 2015 and 2023. Using an industry level TPU index, we measure innovation quantity by patent applications and innovation quality by citation counts. Our results show that rising TPU is positively associated with both the number and the impact of patents, suggesting that uncertainty tends to drive firms toward more and higher-quality innovation. The heterogeneity analysis further indicates that higher TPU exposure is associated with greater innovation activity among small and medium-sized companies, non-state-owned enterprises, and inland companies. By combining firm-level panel data with a novel TPU measure and distinguishing between innovation quantity and quality, this research offers actionable insights for managers allocating R&D resources under uncertainty and for policymakers aiming to stimulate technological progress in volatile trade environments.

Keywords: Trade Policy Uncertainty; Innovation Quantity; Innovation Quality; Patent (search for similar items in EconPapers)
JEL-codes: F13 F14 O31 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ris:eaerev:022414

DOI: 10.11644/KIEP.EAER.2026.30.1.461

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