Innovation and the Patterns of Trade: A Firm-Level Analysis

Ana Maria Santacreu and Liliana Varela
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Ana Maria Santacreu: Federal Reserve Bank of St. Louis

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: This paper studies the impact of increased import penetration on a country’s long-term patterns of trade. It shows that foreign competition induces firms to increase their R&D efforts in order to differentiate their products and escape competition. Quality improvements translate into increases in firms’ exports. This effect, however, is heterogeneous across sectors and is driven by sectors’ in which the country has a comparative advantage. On the aggregate, the impact of import competition on innovation and a country’s patterns of trade depends crucially on the distribution of sectoral comparative advantage. We provide evidence of this mechanism using firm-level data on trade and innovation for France and import competition driven by China’s WTO entry.

Keywords: quality upgrading; import competition; patterns of trade; comparative advantage JEL Classification: F12; F14; O30; O41 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-cse, nep-ino, nep-int, nep-sbm and nep-tid
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https://warwick.ac.uk/fac/soc/economics/research/c ... /404-2019_varela.pdf

Related works:
Working Paper: Innovation and the Patterns of Trade: A Firm-Level Analysis (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:cge:wacage:404

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