A court ruling resolves a dispute between two firms, but its economic effects can reach firms that were never in court - and reach them differently depending on how they are connected to the litigants. Combining Chinese litigation records with production, patent, and customs data for 2000–2009, we construct each non-litigant’s annual exposure from its pre-determined proximity to litigants in technology and product space. Greater technology-space exposure reduces total sales, with the decline concentrated in domestic sales; product-market exposure instead raises total sales through exports. Both market-specific responses emerge at judgment and attenuate by the following year. Export gains are larger in foreign product markets where market shares are more concentrated among Chinese exporters and occur without corresponding innovation or quality upgrading. Although a ruling directly binds only the parties to the dispute, its economic incidence is distributed through pre-existing firm networks.
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Richard Kneller, Joseph Mai and Min Zhu
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