Can Innovation Help U.S. Manufacturing Firms Escape Import Competition from China?
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 wi...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Blackwell Publishing Ltd
2018
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| Online Access: | View Fulltext in Publisher |
| Summary: | 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. © 2018 the American Finance Association |
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| ISBN: | 00221082 (ISSN) |
| DOI: | 10.1111/jofi.12691 |