Enter the Dragon: Import Penetration and Innovation

35 Pages Posted: 3 Aug 2017

See all articles by Erik Lie

Erik Lie

University of Iowa - Henry B. Tippie College of Business

Keyang Daniel Yang

Washington State University

Multiple version iconThere are 2 versions of this paper

Date Written: June 2017

Abstract

We examine the effect of Chinese import penetration on the innovation activities of US manufacturers. We find that firms boost innovation in anticipation of greater import penetration. The boost in innovation relies on familiar technology and results in greater product differentiation. However, after the import penetration has settled, the firms gradually and significantly reduce innovation. As an ancillary finding, we document that import competition prompts firms to scale back capital expenditures. Combined, our evidence suggests that the expectation of Chinese import penetration spurs US firms to innovate to dodge price competition.

Keywords: Import penetration, Innovation, Patents

Suggested Citation

Lie, Erik and Yang, Keyang, Enter the Dragon: Import Penetration and Innovation (June 2017). Available at SSRN: https://ssrn.com/abstract=3012918 or http://dx.doi.org/10.2139/ssrn.3012918

Erik Lie

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States

Keyang Yang (Contact Author)

Washington State University ( email )

Pullman, WA 99164
United States

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