The Effect of Hardship on Innovation: A Study on China's Great Famine.

Abstract

In the pursuit of innovation, many individuals and businesses often face adversity. Those that succeed in overcoming hardship generally have higher risk tolerance, which may in turn translate to higher propensity to innovate. This paper explores the effect of hardship on innovation by exploiting geographical differences in the intensity of China's Great Famine of 1959 to 1961 as a quasi-natural experiment. Using an Instrumental Variables (IV) approach, I show empirically that in a county with one standard deviation higher famine severity, the number of invention, utility model and design patents are approximately higher by 7.54-fold, 15.76-fold and 23.44-fold respectively. After passing robustness checks, these results suggest that sustained hardship breeds innovation in the future and the effect of early-life hardship on subsequent innovation is heterogeneous across different types of patents.