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Foreign Competition and Domestic Innovation: Evidence from U.S. Patents

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  • Autor, David
  • Dorn, David
  • Hanson, Gordon
  • Pisano, Gary
  • Shu, Pian

Abstract

Manufacturing is the locus of U.S. innovation, accounting for more than three quarters of U.S. corporate patents. The rise of import competition from China has represented a major competitive shock to the sector, which in theory could benefit or stifle innovation. In this paper we empirically examine how rising import competition from China has affected U.S. innovation. We confront two empirical challenges in assessing the impact. We map all U.S. utility patents granted by March 2013 to firm-level data using a novel internet-based matching algorithm that corrects for a preponderance of false negatives when using firm names alone. And we contend with the fact that patenting is highly concentrated in certain product categories and that this concentration has been shifting over time. Accounting for secular trends in innovative activities, we find that the impact of the change in import exposure on the change in patents produced is strongly negative. It remains so once we add an extensive set of further industry- and firm-level controls. Rising import exposure also reduces global employment, global sales, and global R&D expenditure at the firm level. It would appear that a simple mechanism in which greater foreign competition induces U.S. manufacturing firms to contract their operations along multiple margins of activity goes a long way toward explaining the response of U.S. innovation to the China trade shock.

Suggested Citation

  • Autor, David & Dorn, David & Hanson, Gordon & Pisano, Gary & Shu, Pian, 2016. "Foreign Competition and Domestic Innovation: Evidence from U.S. Patents," CEPR Discussion Papers 11664, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11664
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    More about this item

    Keywords

    China; firms; import competition; innovation; patents; Trade;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F6 - International Economics - - Economic Impacts of Globalization
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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