Social trust and firms innovation in Chinese provinces

Abstract Social trust is a key component of the social fabric behind institutions and economic outcomes. We contribute to this literature by looking at the role of social trust vis-a-vis corporate innovation performance across Chinese provinces. China, though very likely the most extraordinary emerging economy of the XXI century, is an insightful context, a vast territory with a remarkable socio-economic and institutional heterogeneity, particularly across its provinces. Using multiple data sources covering the period 2012–2017 our baseline model shows an increase in patents (applications and granted) in provinces with higher level of social trust. These results remain consistent to several sensitivity analyses including controlling for annual and industry fixed effects, and to a specific identification strategy using 2SLS estimation. Further model extensions also suggest that social trust is more impactful in provinces with lower quality of formal institutions, among non-state owned rather than state-owned firms, and among firms exhibiting more financial constraints. We argue that this work enriches the current debate regarding the role of cultural traits within different institutional frameworks. It also supports the perspective that policies formulated around the mobility of knowledgeable individuals across regions and institutions, along with collaborative research initiatives, can play a pivotal role.