Export controls and innovation performance: Unravelling the complex relationship between blacklisted Chinese firms and U.S. suppliers

Abstract Export controls are crucial for protecting domestic economic interests globally. However, there is a lack of consensus regarding their impact on innovation performance. This study contributes to the literature by examining the effects of the U.S. entity list on the innovation performance of blacklisted Chinese firms and related industries, as well as the reverse shock on U.S. suppliers. Using propensity score matching and a difference‐in‐differences approach, we found that export controls stimulate technological innovation in blacklisted firms and generate industry‐wide spillover effects in the sanctioned country. Particularly, firms heavily reliant on imports from the United States and those solely dependent on China's domestic market experience significant effects. However, export controls have a negative impact on the innovation performance of U.S. suppliers. We examine the mechanisms driving these effects, including government grants, R&D investment and firm performance. Our work offers valuable insights into the complex relationship between export controls and innovation performance, highlighting the differentiated impacts on blacklisted firms, related industries and U.S. suppliers.