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Abstract:

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CEP Discussion Paper
Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity
Nicholas Bloom, Mirko Draca and John Van Reenen January 2011
Paper No' CEPDP1000:
Full Paper (pdf)

JEL Classification: O33; F14; L25; L60


Tags: china; technical change; trade; firm survival; employment

We examine the impact of Chinese import competition on broad measures of technical change - patenting, IT, R&D, TFP and management practices – using new panel data across twelve European countries between 1996-2007. We correct for endogeneity using the removal of product-specific quotas following China’s entry into the World Trade Organization. Chinese import competition (1) led to increased technical change within firms; and (2) reallocated employment between firms towards more technologically advanced firms. These within and between effects were about equal in magnitude, and appear to account for 15% of European technology upgrading over 2000-2007 (and even higher when allowing for offshoring to China). Rising Chinese import competition also led to falls in employment, profits, prices and the share of unskilled workers. By contrast, import competition from developed countries had no effect on innovation. We develop a simple “trapped factor” model that is consistent with these empirical findings.

This paper has been published as:
Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity, Nicholas Bloom, Mirko Draca and John Van Reenen, Review of Economic Studies, 83:1, January 2016