NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Impact of Emerging Market Competition on Innovation and Business Strategy

Lorenz Kueng, Nicholas Li, Mu-Jeung Yang

NBER Working Paper No. 22840
Issued in November 2016
NBER Program(s):CF, EFG, PR

How do firms in high-income countries adjust to emerging market competition? We estimate how a representative panel of Canadian firms adjusts innovation activities, business strategies, and exit in response to large increases in Chinese imports between 1999 and 2005. On average, process innovation declines more strongly than product innovation. In addition, initially more differentiated firms that survive the increase in competition have better performance ex-post, but are ex-ante more likely to exit. Differentiation therefore does not ensure insulation against competitive shocks but instead increases risk.

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Document Object Identifier (DOI): 10.3386/w22840

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