Chinese import competition, firm-level productivity growth, and the distance to the frontier

Recent evidence suggests that Chinese imports negatively impact firm-level productivity growth in the EU. We argue that this effect is moderated by the technological frontier, as proposed by Acemoglu et al. (2006). Using three distinct measures of the frontier, we examined firm-level data from 23 EU countries between 2003 and 2022 and found mixed results. We find that an increase in Chinese import intensity positively affects catching up to a productivity frontier. However, the productivity growth of firms operating in less technologically advanced sectors is adversely affected by increased Chinese import competition. The results for the country-level measure of national innovation system performance are inconclusive. We partly attribute the productivity growth slowdown to Chinese import competition, which lowers the growth of non-frontier firms. The findings also have implications for EU trade policy in the context of centralized negotiations.