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Effects of Intermediate Input Tariff Reduction on Innovations in China

Author

Listed:
  • Qing Liu

    (University of International Business and Economics)

  • Larry D Qiu

    (The University of Hong Kong)

Abstract

Innovation plays a key role in economic growth. In this paper, we investigate the effects of intermediate input tariff reduction on the innovation activities of domestic firms. Input tariff reduction has two opposite effects on the innovation decision of a firm: it may promote innovation because the cost of innovation activities decreases, but it may also result in a decrease in innovation because foreign technologies become cheaper. We use Chinese firm-level data from 1998 to 2007, which features a drastic input tariff cut in 2002 because of China's WTO accession, and find that input tariff cut results in less innovation undertaken by Chinese firms. The findings are obtained using the difference-in-differences technique and are robust to various specifications checks of the model. We also provide a theoretical framework to generate insights to the empirical findings.

Suggested Citation

  • Qing Liu & Larry D Qiu, 2017. "Effects of Intermediate Input Tariff Reduction on Innovations in China," Working Papers 022017, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:022017
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    References listed on IDEAS

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    More about this item

    Keywords

    Trade liberalization; Intermediate Input; Innovation; Patent;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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