Effects of Intermediate Input Tariff Reduction on Innovations in China

HKIMR Working Paper No.02/2017

56 Pages Posted: 22 Feb 2017

See all articles by Qing Liu

Qing Liu

Renmin University of China

Larry D. Qiu

The University of Hong Kong - Faculty of Business and Economics; Hong Kong University of Science & Technology (HKUST) - Department of Economics

Date Written: February 21, 2017

Abstract

Innovation plays a key role in economic growth. In this paper, we investigate the effects of intermediate input tariff reduction on the innovation activities of domestic firms. Input tariff reduction has two opposite effects on the innovation decision of a firm: it may promote innovation because the cost of innovation activities decreases, but it may also result in a decrease in innovation because foreign technologies become cheaper. We use Chinese firm-level data from 1998 to 2007, which features a drastic input tariff cut in 2002 because of China's WTO accession, and find that input tariff cut results in less innovation undertaken by Chinese firms. The findings are obtained using the difference-in-differences technique and are robust to various specifications checks of the model. We also provide a theoretical framework to generate insights to the empirical findings.

Keywords: Trade liberalization, Intermediate Input, Innovation, Patent

JEL Classification: F13, F15, O14, O31

Suggested Citation

Liu, Qing and Qiu, Larry Dongxiao, Effects of Intermediate Input Tariff Reduction on Innovations in China (February 21, 2017). HKIMR Working Paper No.02/2017. Available at SSRN: https://ssrn.com/abstract=2920978 or http://dx.doi.org/10.2139/ssrn.2920978

Qing Liu (Contact Author)

Renmin University of China ( email )

Larry Dongxiao Qiu

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

School of Economics and Finance
University of Hong Kong
Pokfulam
Hong Kong

HOME PAGE: http://www.bm.ust.hk/~larryqiu/

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