Events

Professor Sudipto Dasgupta
Professor of Finance
CUHK Business School
The Chinese University of Hong Kong

Cross-border patenting has increased dramatically over the last three decades. We argue that a key driver is increased outsourcing and the need for downstream customer firms to securely share proprietary knowledge with their upstream suppliers located internationally. Based on the economic value of cross-border patents [Kogan et al., 2017], we estimate that U.S. downstream firms in recent years gained at least 0.5 trillion dollars annually from patents granted in other countries. Patent values in foreign countries positively correlate with the cumulative abnormal stock returns (CARs) of the foreign suppliers and those suppliers’ industry peers when they are granted. This suggests market anticipation of shared benefits for the suppliers and their U.S. customers, stemming from knowledge transfer and new contracts resulting from the patent grants, alongside expected technology spillovers benefiting competitor firms in the same industry. We provide evidence of a vibrant innovation ecosystem in the international supply chain involving knowledge transfer from U.S. downstream firms and strong within-country spillovers. Our findings bear significant implications for trade policies that might disrupt supply chains, suggesting that measures like tariffs, while aimed at reinforcing domestic supply chains, risk the abandonment of firm-specific knowledge capital that is embedded in established international supplier relationships, and could destabilize the international innovation ecosystems and local agglomeration economies that make global outsourcing efficient.