Population Aging and Corporate Innovation: A U‐Shaped Evidence From China

Population aging (PA) has raised a worldwide concern that it can inhibit corporate innovation because of the shock it imposes on the labor market. To address this concern, this study uses a sample containing data on population and industrial firms' patent in China over the period 2003–2014 to uncover the mystery of corporate innovation in the era of PA. The main findings are threefold: Firstly, the impact of PA on corporate innovation exhibits a U‐shaped pattern. There is evidence supporting the elimination of endogeneity by using the 1959–1961 China's Great Famine and family planning policy as the instrumental variables. Secondly, the U‐shaped impact of PA on corporate innovation can be mediated through mechanisms of rising labor costs, shocks to labor input in labor‐intensive industries, increasing R&D investment, and strengthening people's willingness to receive more education. A U‐shaped relationship is observed in nonresource‐based cities, industries with a lower share of SOEs, and industries with high market competition. These findings add new evidence of population‐economy linkages at the level of industrial firms, which can serve as a worldwide reference to cope with the transformation of the population age structure.