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

Johan Hombert; Adrien Matray

doi:10.1111/jofi.12691

Journal of Finance Vol. 73 No. 5 2018

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

Johan Hombert; Adrien Matray^{1,2,3,4,5,6,7,8,9}

¹ Center for Economic and Policy Research · ² Hoseo University · ³ Copenhagen Business School · ⁴ Princeton University · ⁵ Ghent University · ⁶ Connecting to Care · ⁷ HEC Paris in Qatar · ⁸ World Economic Forum · ⁹ HEC Paris

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 costs. 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 (about half when moving from the bottom quartile to the top quartile of R&D). We provide evidence that this effect is explained by 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.

DOI: 10.1111/jofi.12691
Volume: 73
Issue: 5
Pages: 2003-2039
Language: en
Sources: openalex bibtex:phds-export.bib crossref

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

Abstract

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