DP10666 Can Innovation Help U.S. Manufacturing Firms Escape Import Competition from China?
|Author(s):||Johan Hombert, Adrien Matray|
|Publication Date:||June 2015|
|Keyword(s):||China, import competition, innovation, R&D tax credit|
|JEL(s):||F14, L25, L60, O33|
|Programme Areas:||Industrial Organization, International Trade and Regional Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=10666|
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.