@article{1541fb88aac0499991a876efd697a5b7,
title = "Can Innovation Help U.S. Manufacturing Firms Escape Import Competition from China?",
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.",
author = "Johan Hombert and Adrien Matray",
note = "Funding Information: ∗Johan Hombert is with HEC Paris and CEPR. Adrien Matray is with Princeton University. We thank Nick Bloom; Gerard Hoberg; Rich Mathews; Stephen Redding; Amit Seru; Stefan Zeume; Michael Roberts; and two anonymous referees as well as seminar participants at INSEAD, Copenhagen Business School, Stanford University, CSEF–University of Naples, Imperial College, Montreal University, Erasmus University, Ghent University, the Harvard Business School; and conference participants at the Labex Ecodec Workshop at HEC Paris, the London Business School 2015 Summer Finance Symposium, the 2015 Western Finance Association meeting, the 2015 Workshop on Entrepreneurial Finance and Innovation Around the World, the 2015 Workshop on the Economics of Corporate Ownership, the European Summer Symposium in Financial Markets (Gerzensee) 2015, the 2015 Econometric Society World Meeting, and the 2016 NBER Productivity, Innovation, and Entrepreneurship. Zhen Ye provided excellent research assistance. Hombert acknowledges financial support from the Investissements d{\textquoteright}Avenir Labex (ANR-11-IDEX-0003/Labex Ecodec/ANR-11-LABX-0047). Matray acknowledges financial support from the Julis-Rabinowitz Center for Public Policy and Finance. All of the authors have read the Journal of Finance{\textquoteright}s disclosure policy and have no conflict of interest to disclose. Publisher Copyright: {\textcopyright} 2018 the American Finance Association",
year = "2018",
month = oct,
doi = "10.1111/jofi.12691",
language = "English (US)",
volume = "73",
pages = "2003--2039",
journal = "Journal of Finance",
issn = "0022-1082",
publisher = "Wiley-Blackwell",
number = "5",
}