International Sanctions and Innovation : Empirical Evidence from China’s A-Share Listed Companies

ABSTRACT

Based on data from A-share listed companies in China from 1990 to 2018, this research explores the impact of international sanctions on enterprise technological innovation and their mechanism. Findings demonstrate that international sanctions have a significant inhibitory impact on enterprise technological innovation and are still valid after several robustness tests and endogeneity treatments. Analysis of heterogeneous enterprises presents that the inhibitory effect is mitigated in state-owned enterprises (SOEs) and monopoly industry enterprises, but intensifies in high-tech enterprises. Further mechanism analysis notes that the inhibitory effect is partly transmitted by weakening the internal and external financing capacities of companies.

KEYWORDS:

• International sanctions
• enterprise technological innovation
• financing constraint

JEL:

• F51
• F13
• O30

Acknowledgments

Xia Chen thanks the guidelines from Professor Chun-Ping Chang.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. After 1949, the Truman administration froze Chinese assets in the United States and imposed a trade embargo on it until Nixon’s visit to China and the establishment of diplomatic relations. In 1989, the United States and the United Nations again imposed the most severe series of sanctions on China for political problems. In the early 21^st century, sanctions against China were gradually reduced, and threats of sanctions were made over some issues such as nuclear weapons and intellectual property rights. In 2018, the Trump administration tightened sanctions against China again.

2. Due to the limitation of the CSMAR database, this study only obtains R&D input data after 2007.

3. High-tech enterprises include the following industries: software, computer, Internet, semiconductor, communication equipment, electronic equipment, electrical equipment, pharmaceutical, chemical products, automobile, navigation, aviation, and aerospace.

4. Monopoly enterprises include the following industries: road and railway, electric utilities, gas utilities, water utilities, oil and gas, aviation, aerospace, telecommunications, and tobacco.

Additional information

Funding

Jun Wen is grateful to the National Natural Science Foundation of China [Grant No. 72074176]. Xia Chen is grateful to the Social Science Foundation of Hunan Province [Grant No. 20JD001].