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Can Innovation Help U.S. Manufacturing Firms Escape Import Competition from China?

Author

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  • Hombert , Johan
  • Matray , Adrien

Abstract

The authors study whether R&D-intensive firms are more resilient to trade shocks. They correct for the endogeneity of R&D using tax-induced changes to the cost of R&D. On average across US manufacturing firms, rising imports from China lead to slower sales growth and lower profitability. These effects are, however, significantly smaller for firms with a larger stock of R&D -- by about half when moving from the 25th percentile to the 75th percentile of the R&D stock distribution. As a result, while the average firm in import-competing industries cuts capital expenditures and employment, R&D-intensive firms downsize considerably less.

Suggested Citation

  • Hombert , Johan & Matray , Adrien, 2014. "Can Innovation Help U.S. Manufacturing Firms Escape Import Competition from China?," HEC Research Papers Series 1075, HEC Paris.
    • Handle: RePEc:ebg:heccah:1075
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    Cited by:

    1. Lorenz Kueng & Nicholas Li & Mu-Jeung Yang, 2016. "The Impact of Emerging Market Competition on Innovation and Business Strategy," NBER Working Papers 22840, National Bureau of Economic Research, Inc.
    2. julien sauvagnat & Erik Loualiche & Jean-Noel Barrot, 2015. "Import Competition and the Cost of Capital," 2015 Meeting Papers 898, Society for Economic Dynamics.

    More about this item

    Keywords

    R&D; Innovation; Product Market Competition; Trade Shocks;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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