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

Author(s): Johan Hombert and Adrien Matray

Publication Date: June 2015

Keyword(s): China, import competition, innovation and R&D tax credit

Programme Area(s): Industrial Organization and International Trade and Regional Economics

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 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.

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Bibliographic Reference

Hombert, J and Matray, A. 2015. 'Can Innovation Help U.S. Manufacturing Firms Escape Import Competition from China?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10666