No. 92: Of the thirty-six stratagems, fleeing is the best

Abstract

We study the long-run effects of a temporary relocation of higher education institutions on corporate innovation in the destination area. In the early stages of the Second Sino-Japanese War, students and faculty fled from the northeast and southeast of China to find refuge, ultimately, in the southwest. After the Japanese capitulation in 1945, students and faculty returned to the original campuses. We show that counties to which at least one university temporarily relocated during the war presently have higher economic development and more innovation activities than adjacent counties without such relocation during the war. Firms in the treatment counties exhibit better innovation performance than those in surrounding counties. This effect is more pronounced when the relocated universities are polytechnic universities and public universities. We also document that the average educational achievement of individuals in treatment counties is higher than in control counties, suggesting that one channel for the rise in innovation is increased investment in education. Consistent with that idea, we find that the educational level of (next-generation) migrants in coastal provinces is higher for those migrants originally from counties with relocated universities compared to those from locations without.