Firm Innovation under Import Competition from Low-Wage Countries(2017)
In recent years,manufacturing ﬁrms in the United States have faced increasing import competition from low-wage countries, especially China. Does this competition hurt or help innovation by ﬁrms? This paper studies the eﬀect of the surge in imports from China on innovation in the US manufacturing sector. We combine patent, ﬁrm and trade data during 1990-2006 for US publicly-listed ﬁrms in the Compustat dataset. We ﬁnd consistent evidence that Chinese import competition had a positive eﬀect on ﬁrm innovation, as measured by citation-weighted patent applications. This positive eﬀect persists when we instrument import competition in the US by using Chinese import penetration in the United Kingdom. Next we investigate this relationship between import competition and innovation by considering industry and ﬁrm heterogeneity. We ﬁnd that ﬁrms in low-tech industries and those with a lower degree of product diﬀerentiation show a signiﬁcant positive response to import competition. Firms with a higher capital intensity and lower labor productivity also exhibit a greater response. These results are shown to be robust to a variety of measures for import penetration and innovation. However, they only hold for citation-weighted patent counts, not simply the total number of patents.
Publication DateSummer July, 2017
Citation InformationUjjayant N Chakravorty, Runjuan Liu and Ruotao Tang. "Firm Innovation under Import Competition from Low-Wage Countries" (2017)
Available at: http://works.bepress.com/chakravorty/47/