Do Imports Spur Incremental Innovation in the South?

Abstract

We estimate that a one-standard-deviation increase in a firm's import penetration ratio raises its likelihood of having engaged in an incremental innovation by 4.48% using a random-sampled firm survey in China. The estimate is close to those in Gorodnichenko, Svejnar and Terrell (2010). A number of empirical strategies rule out alternative explanations as sufficient drivers of our result. Competitive pressure from imports is shown to be an underlying mechanism through which imports spur incremental innovation. We discuss how the link between imports and innovation in the South differ from that in the North. © 2012 Elsevier Inc.