Do Bilateral Political Relations Affect the Technological Innovation of Multinational Enterprises? Evidence From China

ABSTRACT Technological innovation by multinational enterprises (MNEs) serves as a key micro‐foundation for enhancing the quality of a country's economic development. Based on a sample of Chinese listed MNEs and leveraging United Nations General Assembly voting data, this paper theoretically analyzes and empirically examines the impact of bilateral political relations on technological innovation in MNEs. The results show that favorable bilateral political relations significantly promote technological innovation, and this conclusion remains robust across a series of robustness checks. Mechanism tests show that favorable bilateral political relations enhance technological innovation by reducing enterprise risks, alleviating financing constraints, and facilitating cross‐border technological cooperation. Further heterogeneity analysis demonstrates that in host countries with weaker institutional environments, the alternative institutional protection provided by favorable bilateral political relations can mitigate institutional risks and more effectively promote technological innovation. Additionally, when the technological gap between the home and host countries is small, favorable bilateral political relations alleviate technological competition pressure in the host country, fostering mutual trust and cooperation, thereby further enhancing innovation. Moreover, MNEs in high‐tech industries benefit more from favorable bilateral political relations in promoting technological innovation. The findings of this study provide valuable insights for optimizing MNEs' innovation strategies and international operations.