Export Tightening, Competition, and Firm Innovation

Miaojie Yu ()
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Miaojie Yu: Peking University

Chapter Chapter 6 in Exchange Rate, Credit Constraints and China’s International Trade, 2021, pp 163-193 from Springer

Abstract: Abstract This chapter investigates how firm innovation reacts to changes in competitive pressure in the export market. We use the exchange rate appreciation of the RMB during 2005–2007 as a natural experiment and exploit its differential impact on Chinese manufacturing firms with different export exposure. The appreciation reduced exports and imposed greater competitive pressure on exporters relative to non-exporters. In response, exporters increased innovation activities more than non-exporters. Using a difference-in-difference approach, we find the R&D expenses of exporters increased by 11% more than non-exporters during the appreciation period, and the new product development of exporters increased by nearly 1.5 times more than non-exporters. Innovation increased for productive, continuing exporters but decreased for less productive firms that quit exporting. These results contradict the prediction of models that link export and innovation solely via market size effects, and suggest the important role of competition in determining firm innovation.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-15-7522-8_6

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DOI: 10.1007/978-981-15-7522-8_6

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