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Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity

  • Nicholas Bloom
  • Mirko Draca
  • John Van Reenen

We examine the impact of Chinese import competition on broad measures of technical change - patenting, IT, R&D, TFP and management practices - using new panel data across twelve European countries between 1996-2007. We correct for endogeneity using the removal of product-specific quotas following China's entry into the World Trade Organization. Chinese import competition (1) led to increased technical change within firms; and (2) reallocated employment between firms towards more technologically advanced firms. These within and between effects were about equal in magnitude, and appear to account for 15% of European technology upgrading over 2000-2007 (and even higher when allowing for offshoring to China). Rising Chinese import competition also led to falls in employment, profits, prices and the share of unskilled workers. By contrast, import competition from developed countries had no effect on innovation. We develop a simple "trapped factor" model that is consistent with these empirical findings.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1000.

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Date of creation: Jan 2011
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Handle: RePEc:cep:cepdps:dp1000
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