Topic：Import Competition and Innovation: Evidence from China
Speaker：Li Bingjing，National University of Singapore
Time: 13:30-15:00
Date: March 28, 2019
Venue: Room 106B, Zhonghui Building

Abstract：

Abstract：
Does foreign competition encourage innovation? This question has received renewed attention recently in two prominent papers by Autor, Dorn, Hanson, Pisano and Shu (2017) and Bloom, Draca and Van Reenen (2016), which come to different conclusions. We contribute to this area of research by exploring the link between innovation and import competition in China, a country that during the period we study (2000-2007) saw both a rapid increase in patenting and a lowering of import barriers due to accession to the WTO. Combining manufacturing firm survey data with customs and patent data, we find that import competition encouraged innovation, but only for the most productive firms. Those top firms saw an increase in patenting rate of 3.6 - 4% for every percentage point drop in import tariffs. The result is quantitatively similar whether we use a sector-wide tariff on output or a weighted tariff at the firm level as a measure of import competition. Consistent with the main finding, top firms also feature increased R&D expenditures and an increase in domestic sales following import liberalization. In addition, we find that in the face of more competition, top firms not only strengthen their core technology, but also enlarge the scope of their patent portfolio. Our empirical findings are consistent with a model of step-by-step innovation à la Aghion et al. (2009) where import competition generally discourages innovation by reducing sector-wide profits, but encourages firms close to the technological frontier to escape competition by increasing investments in R&D.