Full length ArticleKnowledge capital, innovation, and growth in China

- KC investment increases productivity among Chinese enterprises.
- China's KC generates new patents for domestic firms but not FIEs.
- China's comparative advantage has shifted industries with large KC stocks.

We study the relationship between industry-level investments in intangible knowledge capital (KC) and three key economic indicators in China. We find evidence consistent with the hypothesis that investments in KC are productivity-enhancing among domestically owned and foreign invested enterprises (FIEs). Consistent with other research, we find that China's KC generates new patents, but fewer than in major industrialized economies. Finally, we find that China's comparative advantage has shifted toward those sectors where domestic firms have made larger investments in KC, but this trend appears to be independent of the KC accumulated by FIEs.