Does Enforcement of Intellectual Property Rights Matter in China ...

efore the courts with the IP owners as the plaintiffs. We compute IPP1 as the percentage of these
cases ruled in favor of the plaintiffs. We expect that a better enforcement of intellectual property
rights is manifested in the greater odds that the intellectual property owners will win their cases in
courts.
Chinese authorities often announce policy directives through the Communist Party’s official
newspaper. The second measure of IP rights enforcement is the number of articles advocating IP
protection published in the official newspaper of the provincial Communist Party, which represents
the highest level of the provincial administration. Articles published in the official newspaper serve
to convey policy guidelines to all levels of local governments. A greater number of articles related to
IP protection transmit a stronger commitment to IP enforcement by the top provincial officials.
While IPP1 reflects the enforcement effectiveness of courts, IPP2 monitors the attitude of the top
provincial officials towards IP enforcement.
One concern about the causal effect of IP rights enforcement on financing of and investing in
R&D is that some unobserved provincial factors may contribute to both IP rights enforcement and
financing of and investing in R&D, thus producing a potentially spurious relationship between IP
enforcement and financing of and investing in R&D in the OLS regressions. The omitted variable
bias is a common source of the endogeneity problem. Another source of the endogeneity problem is
due to reverse causality: a greater level of financing and investment may increase the demand of IP
protection. We utilize instrumental variable regressions to deal with the problem of endogeneity. To
choose the right instruments, we go back to the pre-modern history of China and identify the
influence of western ideology on the enforcement of IP rights. The two instruments are: 1) Christian
Colleges, i.e., the number of colleges founded by Christian missionaries in the provinces by 1920,
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