Impact of Foreign Policy on Domestic Corporate Innovation

We analyze the unintended consequences of foreign government policies on domestic inventors. In 2009, the Chinese government launched the policy of ''national innovative cities'' to support the innovation of firms in selected regions. However, the unintended consequence of the policy is unclear at the inventor level, in particular, for those foreign inventors who have experience working with Chinese firms that are exposed to the policy intervention. Our research is guided by the research question: \textit{How does government support influence foreign inventors who have collaborated with domestic firms before?} By employing the difference-in-differences (DiD) technique in the quasi-experimental setting, we examine the influence of government intervention on foreign partners. We find that foreign inventors who have established relationships with firms in selected cities experience an increase in collaborators and innovations. We further show that inventors with less patent stock take better advantage of cross-border government support. Taken together, the findings of the study suggest that government support can facilitate unintended cross-border knowledge flows and strengthen the innovation performance of ''treated'' foreign inventors.