Origin Matters: The Differential Impact of Import Competition on Innovation

Forthcoming, Advances in Strategic Management

Ross School of Business Paper No. 1299

42 Pages Posted: 11 Dec 2015 Last revised: 16 Jan 2017

See all articles by Xiaoyang Li

Xiaoyang Li

Deakin University

Yue Maggie Zhou

University of Michigan, Stephen M. Ross School of Business

Date Written: December 9, 2015

Abstract

We examine the impact of import competition on firms’ innovation input and output. We conjecture that U.S. firms view import competition from high-wage countries (HWCs) as “neck-and-neck” competition and will respond by intensifying innovation. In contrast, U.S. firms will reduce innovation in response to import competition from low-wage countries (LWCs), because such competition does not always increase the potential benefits from innovation. Our empirical results are supportive. We find that, when confronting HWC import competition, U.S. firms increase R&D spending while intensifying and improving innovation output (file more patents, receive more citations to their patents, and produce more breakthrough patents). Moreover, U.S. firms closest to the technological frontier — largest firms, firms with the largest stocks of knowledge, and most profitable firms — increase and improve their innovation the most in response to HWC competition. These results shed light on the relationship between product market competition and innovation, and point to the origin of import competition as a determent of innovation decisions made by U.S. companies.

Keywords: Import competition, R&D, Innovation, Patent

JEL Classification: F61, O31, O32

Suggested Citation

Li, Xiaoyang and Zhou, Yue Maggie, Origin Matters: The Differential Impact of Import Competition on Innovation (December 9, 2015). Forthcoming, Advances in Strategic Management; Ross School of Business Paper No. 1299. Available at SSRN: https://ssrn.com/abstract=2701645 or http://dx.doi.org/10.2139/ssrn.2701645

Xiaoyang Li (Contact Author)

Deakin University ( email )

75 Pigdons Road
Victoria, Victoria 3216
Australia

Yue Maggie Zhou

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
135
rank
209,281
Abstract Views
851
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information