Working Paper: NBER ID: w22879
Authors: David Autor; David Dorn; Gordon H. Hanson; Gary Pisano; Pian Shu
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.
Keywords: Foreign competition; Domestic innovation; US patents; Trade exposure
JEL Codes: F14; F60; O31; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Rising Chinese import competition (F14) | Decrease in firm-level patent production (O39) |
| Rising Chinese import competition (F14) | Decrease in technology class-level patent production (O39) |
| Increase in trade exposure (F69) | Decrease in patenting (O39) |
| Rising import competition (F69) | Reduction in global employment (F66) |
| Rising import competition (F69) | Reduction in sales (D49) |
| Rising import competition (F69) | Reduction in profitability (G32) |
| Rising import competition (F69) | Reduction in R&D expenditure (O32) |