Can Innovation Help U.S. Manufacturing Firms Escape Import Competition from China?

Johan Hombert, Adrien Matray

Research output: Contribution to journalArticle

14 Scopus citations

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 R&D costs. While rising imports from China lead to slower sales growth and lower profitability, these effects are significantly smaller for firms with a larger stock of R&D (about half when moving from the bottom quartile to the top quartile of R&D). We provide evidence that this effect is explained by R&D allowing firms to increase product differentiation. As a result, while firms in import-competing industries cut capital expenditures and employment, R&D-intensive firms downsize considerably less.

Original languageEnglish (US)
Pages (from-to)2003-2039
Number of pages37
JournalJournal of Finance
Volume73
Issue number5
DOIs
StatePublished - Oct 2018

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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