Foreign Competition and Domestic Innovation: Evidence from U.S. Patents

48 Pages Posted: 29 Nov 2016

See all articles by David H. Autor

David H. Autor

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

David Dorn

University of Zurich - Department of Economics; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute)

Gordon H. Hanson

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS); National Bureau of Economic Research (NBER)

Gary P. Pisano

Harvard Business School

Pian Shu

Scheller College of Business, Georgia Tech

Multiple version iconThere are 2 versions of this paper

Date Written: November 2016

Abstract

Manufacturing is the locus of U.S. innovation, accounting for more than three quarters of U.S. corporate patents. The rise of import competition from China has represented a major competitive shock to the sector, which in theory could benefit or stifle innovation. In this paper we empirically examine how rising import competition from China has affected U.S. innovation. We confront two empirical challenges in assessing the impact. We map all U.S. utility patents granted by March 2013 to firm-level data using a novel internet-based matching algorithm that corrects for a preponderance of false negatives when using firm names alone. And we contend with the fact that patenting is highly concentrated in certain product categories and that this concentration has been shifting over time. Accounting for secular trends in innovative activities, we find that the impact of the change in import exposure on the change in patents produced is strongly negative. It remains so once we add an extensive set of further industry- and firm-level controls. Rising import exposure also reduces global employment, global sales, and global R&D expenditure at the firm level. It would appear that a simple mechanism in which greater foreign competition induces U.S. manufacturing firms to contract their operations along multiple margins of activity goes a long way toward explaining the response of U.S. innovation to the China trade shock.

Keywords: China, firms, import competition, innovation, patents, Trade

Suggested Citation

Autor, David H. and Dorn, David and Hanson, Gordon H. and Pisano, Gary and Shu, Pian, Foreign Competition and Domestic Innovation: Evidence from U.S. Patents (November 2016). CEPR Discussion Paper No. DP11664. Available at SSRN: https://ssrn.com/abstract=2877269

David H. Autor (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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David Dorn

University of Zurich - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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IZA Institute of Labor Economics

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Gordon H. Hanson

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS) ( email )

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National Bureau of Economic Research (NBER)

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Gary Pisano

Harvard Business School ( email )

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Pian Shu

Scheller College of Business, Georgia Tech ( email )

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Atlanta, GA 30308
United States

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