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Export tightening, competition, and firm innovation: Evidence from the renminbi appreciation

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  • Mi Dai
  • Miaojie Yu
  • Chunming Zhao

Abstract

This paper investigates how firm innovation reacts to changes in competitive pressure in the export market. We use the exchange rate appreciation of the renminbi during 2005–2007 as a natural experiment and exploit its differential impact on Chinese manufacturing firms with different export exposure. The appreciation reduced exports and imposed greater competitive pressure on exporters relative to non†exporters. In response, exporters increased innovation activities more than non†exporters. Using a difference†in†difference approach, we find that the research and development expenditure of exporters increased by 11% more than that of non†exporters during the appreciation period, and the new product development of exporters increased by nearly 1.5 times more than that of non†exporters. These results highlight the important role of competition in providing incentives for firm innovation.

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  • Mi Dai & Miaojie Yu & Chunming Zhao, 2018. "Export tightening, competition, and firm innovation: Evidence from the renminbi appreciation," Review of Development Economics, Wiley Blackwell, vol. 22(1), pages 263-286, February.
    • Handle: RePEc:bla:rdevec:v:22:y:2018:i:1:p:263-286
    DOI: 10.1111/rode.12340
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    Cited by:

    1. Sourafel Girma & Holger Görg, 2022. "Productivity effects of processing and ordinary export market entry: A time‐varying treatments approach," Review of International Economics, Wiley Blackwell, vol. 30(3), pages 836-853, August.
    2. Yueling Cai & Gongliang Wu & Dingsheng Zhang, 2020. "Does Export Trade Promote Firm Innovation?," Annals of Economics and Finance, Society for AEF, vol. 21(2), pages 483-506, November.
    3. Rui Mao & Mengying Xing & Xiaohua Yu, 2021. "Quality response to real exchange rate shocks: A panel SVAR analysis on China's agricultural exports," Agricultural Economics, International Association of Agricultural Economists, vol. 52(5), pages 719-731, September.
    4. Tingxi Wang & Hui Zhang, 2022. "Does Counter-Cyclical Monetary Policy Promote Enterprise R&D Investment in a Recession? Empirical Evidence from China," Sustainability, MDPI, vol. 14(10), pages 1-18, May.
    5. Yanyang Yan & Juan Wang & Sijia Qiao, 2022. "Effects of Industrial Policy on Firms’ Innovation Outputs: Evidence From China," SAGE Open, , vol. 12(3), pages 21582440221, September.
    6. Zaichao Du & Jie Li & Pei Pei, 2021. "The impacts of China’s exchange rate regime reform in 2005: A counterfactual analysis," Review of Development Economics, Wiley Blackwell, vol. 25(1), pages 430-448, February.
    7. Dong, Baomin & Guo, Yibei & Hu, Xiaotian, 2022. "Intellectual property rights protection and export product quality: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 143-158.
    8. Edmund Mallinguh & Christopher Wasike & Zeman Zoltan, 2020. "Technology Acquisition and SMEs Performance, the Role of Innovation, Export and the Perception of Owner-Managers," JRFM, MDPI, vol. 13(11), pages 1-19, October.

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