Globalization of Work and Innovation: Evidence from Doing Business in China
77 Pages Posted: 2 Jun 2015 Last revised: 17 Jun 2017
Date Written: May 30, 2017
We study how access to “cheap” offshore labor due to the 1999 U.S.-China bilateral agreement affects U.S. firms’ innovation. To this end, we decompose innovations into new goods (product innovations) and new production methods (process innovations). We find that U.S. firms operating in China decrease their share of process innovations by 12% and that this adjustment is purely driven by a lower quantity of process innovations. We obtain the same result using the inter-temporal variation in ownership restrictions on foreign investment in China across industries. Our findings suggest that using cheap and abundant offshore labor substitutes for labor-saving innovation.
Keywords: Globalization of work, technological change, product and process innovation, labor-saving innovation, China
JEL Classification: O33, J31, L23
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