The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
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.