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Export tightening, competition, and firm innovation: Evidence from the renminbi appreciation
Author(s) -
Dai Mi,
Yu Miaojie,
Zhao Chunming
Publication year - 2018
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/rode.12340
Subject(s) - competition (biology) , incentive , renminbi , differential effects , economics , differential (mechanical device) , exchange rate , international economics , natural experiment , product (mathematics) , international trade , industrial organization , monetary economics , business , market economy , biology , aerospace engineering , medicine , ecology , geometry , mathematics , engineering , statistics
This paper investigates how firm innovation reacts to changes in competitive pressure in the export market. We use the exchange rate appreciation of the renminbi during 2005–2007 as a natural experiment and exploit its differential impact on Chinese manufacturing firms with different export exposure. The appreciation reduced exports and imposed greater competitive pressure on exporters relative to non‐exporters. In response, exporters increased innovation activities more than non‐exporters. Using a difference‐in‐difference approach, we find that the research and development expenditure of exporters increased by 11% more than that of non‐exporters during the appreciation period, and the new product development of exporters increased by nearly 1.5 times more than that of non‐exporters. These results highlight the important role of competition in providing incentives for firm innovation.