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

Johan Hombert and Adrien Matray
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Johan Hombert: HEC Paris - Ecole des Hautes Etudes Commerciales
Adrien Matray: GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique

Working Papers from HAL

Abstract: We study whether R&D-intensive firms are more resilient to trade shocks. We correct for the endogeneity of R&D using tax-induced changes to R&D cost. While rising imports from China lead to slower sales growth and lower profitability, these effects are significantly smaller for firms with a larger stock of R&D (by about half when moving from the bottom quartile to the top quartile of R&D). We provide evidence that this effect is explained R&D allowing firms to increase product differentiation. As a result, while firms in import-competing industries cut capital expenditures and employment, R&D-intensive firms downsize considerably less.

Keywords: R&D; Innovation; Product Market Competition; Trade Shocks (search for similar items in EconPapers)
Date: 2014-12-24
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-02011417

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