Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity
We examine the impact of Chinese import competition on patenting, IT, R&D and TFP using a panel of up to half a million firms over 1996-2007 across twelve European countries. We correct for endogeneity using the removal of product-specific quotas following China's entry into the World Trade Organization. Chinese import competition had two effects: first, it led to increases in R&D, patenting, IT and TFP within firms; and second it reallocated employment between firms towards more innovative and technologically advanced firms. These within and between effects were about equal in magnitude, and appear to account for around 15% of European technology upgrading between 2000-2007. Rising Chinese import competition also led to falls in employment, profits, prices and the skill share. By contrast, import competition from developed countries had no effect on innovation. We develop a simple "trapped factor" model of innovation that is consistent with these empirical findings.
We would like to thank the Economic and Social Research Council, Anglo-German Foundation, the European Commission, the Alfred Sloan Foundation, and the National Science Foundation for their financial support. Helpful comments have been received from Steve Redding, Elhanan Helpman, our formal discussants (Oriana Bandiera, Allan Collard-Wexler, Francesco Daveri, Fritz Foley, Andrei Levchenko, Marc Melitz, Ralf Ossa, Peter Schott and Reinhilde Veugelers) and from seminar audiences in Aarhus, AEA, Brussels, Berkeley, Boston University, Brown, CEMFI, Colorado, Duke, Georgetown, Harvard, Houston, LSE, Mannheim, Maryland, Minnesota, MIT, NBER, NYU Stern, OECD, Penn State, Princeton, PSE, San Francisco Fed, Sciences Po, Stanford, SITE, Texas, Toronto, UC Davis, UCLA, UCSC, Warwick, World Bank, Yale, ZEW and Zurich. Charles Wang has provided excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- Increased import competition with China has caused a significant technological upgrading in European firms. In Trade-Induced...
Nicholas Bloom & Mirko Draca & John Van Reenen, 2016. "Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity," The Review of Economic Studies, vol 83(1), pages 87-117. citation courtesy of