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

44 Pages Posted: 5 Dec 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)

Pian Shu

Scheller College of Business, Georgia Tech

Gary P. Pisano

Harvard Business School

Multiple version iconThere are 2 versions of this paper

Date Written: December 2016

Abstract

The competitive shock to the U.S. manufacturing sector spurred by rising China import competition could either catalyze or stifle innovation. Using three distinct sources of variation to identify rising trade exposure, we provide a causal analysis of the effect of surging import competition on U.S. innovative activities. Applying a novel internet-based matching algorithm to map all U.S. utility patents granted by 2013 to firm-level data, and carefully accounting for the shifting concentration of patenting activity across sectors, we document a robust, negative impact of rising Chinese competition on firm-level and technology class-level patent production. Accompanying this fall in innovation, global employment, sales, profitability, and R&D expenditure all decline within trade-exposed firms. The trade-induced contraction along all margins of adjustment and for all measures of valuation suggest that the primary response of firms to greater import competition is to scale back their global operations.

Suggested Citation

Autor, David H. and Dorn, David and Hanson, Gordon H. and Shu, Pian and Pisano, Gary, Foreign Competition and Domestic Innovation: Evidence from U.S. Patents (December 2016). NBER Working Paper No. w22879. Available at SSRN: https://ssrn.com/abstract=2880318

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 )

Zürich
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Munich, DE-81679
Germany

Gordon H. Hanson

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

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La Jolla, CA 92093-0519
United States

National Bureau of Economic Research (NBER)

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Pian Shu

Scheller College of Business, Georgia Tech ( email )

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Atlanta, GA 30308
United States

Gary Pisano

Harvard Business School ( email )

Technology & Operations Management Unit
Morgan Hall
Boston, MA 02163
United States
617-495-6562 (Phone)
617-496-5265 (Fax)

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