by Xiao Ma, Yiran Zhang                                

Abstract

Using comprehensive patent data, we document: (1) multinational affiliates and their foreign parent firms comprise a significant portion of patents filed in China; and (2) there are subsequent transfers and spillovers of these technologies to domestic firms. Guided by this evidence, we develop a model of multinational production featuring cross-country idea flows, transfers, and spillovers. Quantitatively, we find that without multinational production and knowledge spillovers, the idea stock owned by China would drop by 30%. Furthermore, due to the externalities of multinationals through technology transfers and spillovers, subsidizing multinationals will at most increase real income by 8% in China.