Innovation responses of Japanese firms to Chinese import competition

This paper examines innovation responses of a panel of Japanese firms to the intensified import competition from China in the period 1995–2005. We build a comprehensive firm-level dataset linking patents and R&D merged to cross-industry measures of Chinese import competition. Accounting for a simultaneity bias between innovation and importing and the possible heterogeneous effects across firms, we found that patenting has increased in response to an influx of Chinese imports, but it has adversely affected the quality of innovation, measured by forward citations received. These effects are only observed for globally engaged firms, not for firms focusing on the domestic market.