Import competition and firm innovation, 2000-2010

This paper studies the influence of import competition on innovation by Dutch manufacturing firms.

International trade has undergone rapid changes in the last decade: Eastern-European countries opened up, China joined the WTO, and these and many other countries, that initially played a minor role in international trade, have now become major competitors of traditional industrial countries. This paper analyses the impact of import competition on patent activities by Dutch manufacturing firms for the period 2000-2010. Using a combination of patent, firm and trade data, we show that more intense import competition leads to a lower number of patent applications whereas it has no influence on the number of forward citations. The latter is a measure for the quality of the patents. For firms who register their patents only in the Netherlands, this negative import competition effect is more pronounced. Whereas most studies only consider import competition from China and other emerging markets, we also take high wage countries into account. We find that import competition from countries who were member of the EU before 2004 has a negative impact on the number of patents, whereas there is no statistically significant influence from newer EU member states, China or the group of countries in the rest of the world.

Commissioned by: Dutch ministry of Foreign Affairs.