Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, it and Productivity

63 Pages Posted: 24 Jan 2011 Last revised: 3 Apr 2015

See all articles by Nicholas Bloom

Nicholas Bloom

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Mirko Draca

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); Harvard University - Edmond J. Safra Center for Ethics; University of Warwick - Department of Economics

John Van Reenen

London School of Economics - Centre for Economic Performance (CEP); Stanford Graduate School of Business; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2011

Abstract

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.

Suggested Citation

Bloom, Nicholas and Draca, Mirko and Van Reenen, John Michael, Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, it and Productivity (January 2011). NBER Working Paper No. w16717. Available at SSRN: https://ssrn.com/abstract=1744671

Nicholas Bloom (Contact Author)

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Mirko Draca

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John Michael Van Reenen

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