Intermediate input imports and innovation : evidence from Chinese firms

Qing LIU, Larry D. QIU*

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)

44 Citations (Scopus)

Abstract

Innovation plays a key role in economic growth. In this paper, we investigate the effects of intermediate input tariff reduction on the innovation activities of domestic firms. Input tariff reduction has two opposite effects on the innovation decision of a firm: it may promote innovation because the cost of innovation activities decreases, but it may also result in a decrease in innovation because foreign technologies become cheaper. We use Chinese firm-level data from 1998 to 2007, which features a drastic input tariff cut in 2002 because of China's WTO accession, and find that input tariff cut results in less innovation undertaken by Chinese firms. The findings are obtained using the difference-in-differences technique and are robust to various specifications checks of the model. We also provide a theoretical framework to generate insights to the empirical findings.

Original languageEnglish
Pages (from-to)166-183
Number of pages18
JournalInternational Economics
Volume103
Early online date5 Oct 2016
DOIs
Publication statusPublished - Nov 2016
Externally publishedYes

Keywords

  • Trade liberalization
  • Intermediate input
  • Innovation
  • Patent

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