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No 1075:
Can Innovation Help U.S. Manufacturing Firms Escape Import Competition from China?

Johan Hombert () and Adrien Matray ()

Abstract: The authors study whether R&D-intensive firms are more resilient to trade shocks. They 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: R&D; Innovation; Product Market Competition; Trade Shocks; (follow links to similar papers)

JEL-Codes: F14; G31; O33; (follow links to similar papers)

39 pages, December 24, 2014

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