Working Paper: CEPR ID: DP10666
Authors: Johan Hombert; Adrien Matray
Abstract: We study whether R&D-intensive firms are more resilient to trade shocks. We correct for the endogeneity of R&D using tax-induced changes to the cost of R&D. On average across US manufacturing firms, rising imports from China lead to slower sales growth and lower profitability. These effects are, however, significantly smaller for firms with a larger stock of R&D -- by about half when moving from the 25th percentile to the 75th percentile of the R&D stock distribution. As a result, while the average firm in import-competing industries cuts capital expenditures and employment, R&D-intensive firms downsize considerably less.
Keywords: China; Import Competition; Innovation; R&D Tax Credit
JEL Codes: F14; L25; L60; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| China's import penetration (F14) | US manufacturing firms' performance (L25) |
| R&D capital (O32) | firm performance (L25) |
| R&D stock (O32) | impact of trade shocks (F69) |
| R&D-intensive firms (O32) | capital expenditures and employment (E22) |