Import Competition, Destinations, and Firms’ Patent Strategies

Abstract

International trade has undergone rapid changes in the last decades. Eastern-European countries opened up and China joined the WTO. These and many other countries that initially played a minor role in international trade have now become major competitors of traditional industrial countries. This paper analyzes the impact of import competition on patent activities by Dutch manufacturing firms for the period 2000–2010. Using a combination of patent, firm, and trade data, we show that more intense import competition leads to a higher number of patent applications. It has also a positive influence on the number of forward citations and entry of new patents, and in firms entering new technology fields. In short, import competition fosters innovation. For firms only engaged in domestic innovation, this positive import competition effect is also confirmed. Whereas most studies only consider import competition from China and other emerging markets, we also take high-developed countries into account. We find that import competition from all high-wage countries as one region together has only an effect on the number of patents and patent quality. But there is no statistically significant influence from EU member states, China, or the group of countries in the rest of the world.