Can Innovation Help U.S. Manufacturing Firms Escape Import Competition from China?

Hombert, Johan; Matray, Adrien

doi:10.2139/ssrn.2542495

Cited by 49 publications

(79 citation statements)

References 47 publications

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“…Chilean firms with higher preliberalization TFPQ, part of which reflects greater innovation ability, showed increased productivity in response to increased competition compared with low-TFPQ firms, which showed a decrease. This is consistent with Hombert and Matray (2018), who show that while rising imports from China led to slower sales growth and lower profitability for U.S. manufacturing firms, these effects are significantly smaller for firms with a larger stock of research and development (R&D), reflecting their ability to differentiate their products. Bloom, Draca, and Van Reenen (2016) similarly find that in sectors more exposed to Chinese imports, job and survival rates fell in firms with low patenting intensity, but firms with high patenting intensity were relatively sheltered.…”

Section: Documenting the Benefits Of Trade Liberalizationsupporting

confidence: 88%

Productivity Revisited: Shifting Paradigms in Analysis and Policy

Cusolito¹,

Maloney²

2018

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Section: Documenting the Benefits Of Trade Liberalizationsupporting

confidence: 88%

Productivity Revisited: Shifting Paradigms in Analysis and Policy

Cusolito¹,

Maloney²

2018

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“…There does not seem to be a negative effect of employment‐at‐will exceptions on local labour markets' ability to absorb import shocks, in contrast to what the mechanisms implied by Autor et al. () and Hombert and Matray ().…”

Section: Discussioncontrasting

confidence: 54%

“…Hirsch () states that while unions do not have a significant effect on productivity, unions tend to reduce R&D, investment and profitability. This is interesting given recent research by Hombert and Matray (), who find that firms who had exogenously higher amounts of R&D downsized much less than firms with lower R&D levels as a response to Chinese import competition. States with higher union density can therefore also translate into higher impacts on economic outcomes from import shocks.…”

Section: Data and Backgroundmentioning

confidence: 91%

“…For example, recent findings by Bradley, Kim, and Tian () provide strong empirical evidence that unions stifle both the amount and the quality of innovation conducted by firms. This is important because firms, and by extension local labour markets, that conduct more innovation are better suited to surviving import shocks; recent work by Hombert and Matray () shows that firms that exogenously conducted more R&D suffered considerably less from Chinese import competition. They argue that this is because R&D contributed to product differentiation, similar to the arguments made by Bloom, Draca, and Van Reenen ().…”

Section: Potential Mechanismsmentioning

confidence: 99%

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Labour market characteristics and surviving import shocks

Chan

2019

World Economy

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This paper investigates whether different labour market characteristics amplify or dampen the local labour market impacts from Chinese import competition exposure. I exploit state‐level variation in initial, pre‐shock labour market characteristics and regional variation across local labour markets in exposure to Chinese imports for identification. I find that local labour markets in states with higher union density experience more severe adverse consequences as a result of increased import exposure. Conversely, higher initial minimum wages help mute the negative impacts of the China shock. I also provide some evidence that exceptions to employment‐at‐will legislation can affect employment responses to increased Chinese imports. Finally, examining all policies together in an index, I show that higher levels of policies intended to benefit and protect workers can actually magnify the extent of the damage inflicted by import competition. My results suggest that initial labour market characteristics and policies can play an important role in understanding why local labour markets react differently to trade shocks.

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“…Prior evidence, including Autor, Dorn, and Hanson (), Acemoglu et al. (), and Hombert and Matray (), suggests that U.S. firms responded negatively to this event. In Internet Appendix Table IA.III, we run a series of industry‐level cross‐sectional regressions assessing the effect of SC on the change in U.S. imports from China, U.S. exports to China, U.S. net imports from China, and U.S. employment, output, and value added between 2000 and 2007.…”

Section: Measuring the Globalization Risk Premiummentioning

confidence: 95%

The Globalization Risk Premium

Barrot¹,

Loualiche²,

Sauvagnat

2019

The Journal of Finance

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In this paper, we investigate how globalization is reflected in asset prices. We use shipping costs to measure firms' exposure to globalization. Firms in low shipping cost industries carry a 7% risk premium, suggesting that their cash flows covary negatively with investors' marginal utility. We find that the premium emanates from the risk of displacement of least efficient firms triggered by import competition. These findings suggest that foreign productivity shocks are associated with times when consumption is dear for investors. We discuss conditions under which a standard model of trade with asset prices can rationalize this puzzle.RECENT DECADES HAVE BEEN CHARACTERIZED by a high degree of trade integration. This era of globalization 1 is generally seen in a positive light, as it has been associated with more product variety at lower prices, cheaper intermediate goods, and greater access for U.S. firms to foreign markets. 2 Yet globalization also makes domestic economies more sensitive to foreign shocks. A salient * Jean-Noël Barrot is with HEC Paris and CEPR. Erik Loualiche is with the University of Minnesota, Carlson School of Management. Julien Sauvagnat is with Bocconi University and CEPR. For helpful comments, the authors thank Stefan Nagel (the Editor); Nick Bloom; Maria Cecilia Bustamante (discussant); Bernard Dumas (discussant); Nicola Gennaioli; Matthieu Gomez; Pierre-Olivier Gourinchas; Tarek Hassan (discussant); Christian Julliard; Matteo Maggiori (discussant); Jonathan Parker; Carolin Pflueger; Thomas Philippon; Nick Roussanov (discussant); Chris Telmer (discussant); Adrien Verdelhan; Michael Weber (discussant); anonymous referees; and seminar participants at MIT Sloan, SED annual meetings 1 σ J −1 . 24 We show formally in Internet Appendix Section I.A that the consumption index is C J = ( J c J (ϕ) σ J −1 σ J dϕ) σ J σ J −1 and the price index is P J = ( J p J (ϕ) 1−σ J dϕ) 1 1−σ J .We show that average profits of firms' domestic operations are π D,J (φ D,J ) and average profits for exporting operations are π X,J (φ X,J ). We define the fraction of firms that decide to export as ζ J = Pr{ϕ > ϕ X,J }. Finally, we express the profits of domestic firms from all their operations asEquilibrium: The aggregate budget constraint can be expressed in terms of the final composite consumption good, C, the aggregate price index, P, and the revenues of firms flowing back to households, , such that in each country we have PC ≤ L + .Under financial autarky, as is the case in Ghironi and Melitz (2005), households only receive the proceeds of domestic firms' operations, such that AUT = J J . Under perfect risk-sharing, households receive a share of world industry profits relative to their capital endowments, RS = J M J M J +M J

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Can Innovation Help U.S. Manufacturing Firms Escape Import Competition from China?

Cited by 49 publications

References 47 publications

Productivity Revisited: Shifting Paradigms in Analysis and Policy

Productivity Revisited: Shifting Paradigms in Analysis and Policy

Labour market characteristics and surviving import shocks

The Globalization Risk Premium

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