Investments and Innovation with Non-Rival Inputs: Evidence from Chinese Artificial Intelligence Startups

Abstract

We examine the effect of investments by large technology firms on innovation by AI startups. Large technology firms have substantial advantages in data, a key non-rival input for developing AI technology. We assemble a unique dataset containing approximately 9,800 AI-inventing startups in China. Using a triple-differences strategy, we find that AI startups receiving investments from large technology firms file more AI patent applications and develop more software products following the investment, relative to their counterparts receiving investments from other firms without data advantages. Finally, we provide novel evidence that the innovation effect works mainly through sharing non-rival data.