Rui Xu

Kaiji Gong

We analyze the impact of rising import competition from China on U.S. innovative activities. Using Compustat data, we find that import competition induces R&D expenditures to be reallocated towards more productive and more profitable firms within each industry. Such reallocation effect has the potential to offset the average drop in firm-level R&D identified in the previous literature. Indeed, our quantitative analysis shows no adverse impact of import competition on aggregate R&D expenditures. Taking the analysis beyond manufacturing, we find that import competition has led to reallocation of researchers towards booming service industries, including business and repairs, personal services, and financial services.

Kaiji Gong

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