JVM Seminar: Rui Xu (Int. Monetary Fund)
Does Import Competition Induce R&D Reallocation? Evidence from the U.S.
Abstract: We analyze the impact of rising import competition from China on U.S. innovative activities, both at the firm level and at the industry level. Using Compustat firm-level data, we identify a negative effect of import competition on R&D expenditures of U.S. public firms. Since import competition is measured at the industry level, the average negative effect masks potential heterogeneity across firms within an industry. Indeed we find that import competition induces R&D to reallocate towards more productive, less financially constrained and more profitable firms. When we take the analysis to the industry level, the negative effect of import competition goes away. In addition, our analysis using population census data suggests that rising competition from China in manufacturing has led to reallocation of researchers towards booming service industries, including business and repairs, personal services, and financial services.