The Great Innovation Rewiring: De-risking from China and the Bifurcation of Global R&D

Building on Fodouop Kouam and Ekweozor (2024) on supply-chain de-risking and Grüning (2017) on heterogeneity in the internationalization of R&D by incumbents versus entrants, this project treats de-risking as a shock that raises risk premia and coordination costs in specific geographies. In a two-country Schumpeterian model with spatial structure (in the spirit of the Spatial Macroeconomics special issue curated by Bond-Smith et al., 2024), incumbents’ incremental innovation can be relocated more easily than entrants’ radical innovation—due to their broader international R&D networks—breaking the tight comovement in innovation probabilities that many growth models assume. The novel prediction is a bifurcation: receiving countries see a quick uptick in incremental, often greener process innovations (consistent with the “pollution halo” from green trade/FDI in Wei et al., 2023), while radical breakthrough activity slows globally due to fragmentation and higher coordination costs. Empirically, use event studies around firm-level relocation announcements and tariff/COVID shocks to track shifts in patent fields, novelty scores, and applicant types (incumbent vs entrant), and connect them to local energy mixes and GHG outcomes (Haller et al., 2023; Alexiou, 2025). The payoff is a coherent account of why short-run de-risking can coincide with lower emissions and more “eco-innovation” in some regions but slower frontier growth globally—an anomaly that current trade-focused analyses miss.

References:

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2. Heterogeneity in the Internationalization of R&D: Implications for Anomalies in Finance and Macroeconomics. Patrick Grüning (2017). Finance Research Letters.
3. Spatial macroeconomics. Steven Bond‐Smith, Luisa Corrado, D. Felsenstein, P. Elhorst (2024). Spatial Economic Analysis.
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6. Patent Systems and Carbon Dioxide Emissions: Short and Long Run Perspectives on Economic Development and Sustainability. Constantinos Alexiou (2025). Sustainable Development.