Innovation Responses of Japanese Firms to Chinese Import Competition

This paper examines innovation response of a panel of Japanese firms to the intensified import competition from China for the period 1995-2010. We build a comprehensive firm-level dataset linking innovation activities including patenting and research and development (R&D) merged to cross-industry measures of Chinese import competition. Carefully accounting for a simultaneity bias between innovation and importing and the possible heterogeneous effects across firms, it is found that firms filed for more patents in response to increased import competition from China. However, this effect is only evident for a group of globally engaged firms. At the same time, Chinese import competition has adversely affected the quality of innovation as measured by citations. Overall, firms with a more domestic market focus are the ones who have felt most of the Chinese import competition, which is also reflected in their declined R&D efforts.

Published: Yamashita, Nobuaki, and Isamu Yamauchi, 2019. "Innovation responses of Japanese firms to Chinese import competition," The World Economy, Vol. 43(1), pp. 60-80.
https://onlinelibrary.wiley.com/doi/10.1111/twec.12843