Export Tightening, Competition, and Firm Innovation: Evidence from the Renminbi Appreciation

24 Pages Posted: 23 Jan 2018

See all articles by Mi Dai

Mi Dai

Beijing Normal University (BNU)

Miaojie Yu

Peking University - China Center for Economic Research (CCER)

Chunming Zhao

Beijing Normal University (BNU) - School of Economics and Business Administration

Date Written: February 2018

Abstract

This paper investigates how firm innovation reacts to changes in competitive pressure in the export market. We use the exchange rate appreciation of the renminbi during 2005–2007 as a natural experiment and exploit its differential impact on Chinese manufacturing firms with different export exposure. The appreciation reduced exports and imposed greater competitive pressure on exporters relative to non‐exporters. In response, exporters increased innovation activities more than non‐exporters. Using a difference‐in‐difference approach, we find that the research and development expenditure of exporters increased by 11% more than that of non‐exporters during the appreciation period, and the new product development of exporters increased by nearly 1.5 times more than that of non‐exporters. These results highlight the important role of competition in providing incentives for firm innovation.

Suggested Citation

Dai, Mi and Yu, Miaojie and Zhao, Chunming, Export Tightening, Competition, and Firm Innovation: Evidence from the Renminbi Appreciation (February 2018). Review of Development Economics, Vol. 22, Issue 1, pp. 263-286, 2018. Available at SSRN: https://ssrn.com/abstract=3107339 or http://dx.doi.org/10.1111/rode.12340

Mi Dai (Contact Author)

Beijing Normal University (BNU) ( email )

19 Xinjiekou Outer St
Haidian District
Beijing, Guangdong 100875
China

Miaojie Yu

Peking University - China Center for Economic Research (CCER) ( email )

Beijing, Beijing 100871
China
+86-10-6275-3109 (Phone)

HOME PAGE: http://mjyu.ccer.edu.cn

Chunming Zhao

Beijing Normal University (BNU) - School of Economics and Business Administration ( email )

No.19 Xinwai Str
Haidian District
Beijing, 100875
China

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