Machines Could Not Compete with Chinese Labor: Evidence from U.S. Firms’ Innovation

70 Pages Posted: 2 Jun 2015 Last revised: 21 Jan 2019

See all articles by Jan Bena

Jan Bena

University of British Columbia - Sauder School of Business

Elena Simintzi

University of North Carolina Kenan-Flagler Business School; Centre for Economic Policy Research (CEPR)

Date Written: January 20, 2019

Abstract

We study how an improvement in contracting institutions due to the 1999 U.S.-China bilateral agreement affects U.S. firms’ innovation. We show that U.S. firms operating in China decrease their process innovations—innovations that improve firms’ own production methods—following the agreement. We obtain the same result using the inter-temporal variation in ownership restrictions on foreign investment in China across industries. These findings suggest that a better ability to source labor cheaply across borders affects the types of technologies that are being developed less process innovation aimed at reducing production cost. More broadly, a decrease in the effective price of labor due to the removal of frictions affects corporate innovation.

Keywords: process innovation, technological change, labor, China

JEL Classification: O33, J31, L23

Suggested Citation

Bena, Jan and Simintzi, Elena, Machines Could Not Compete with Chinese Labor: Evidence from U.S. Firms’ Innovation (January 20, 2019). Available at SSRN: https://ssrn.com/abstract=2613248 or http://dx.doi.org/10.2139/ssrn.2613248

Jan Bena

University of British Columbia - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
+1 604 822 8490 (Phone)

HOME PAGE: http://www.janbena.com

Elena Simintzi (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building, Room 4200B
300 Kenan Center Drive
Chapel Hill, NC 27599-3490
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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