China’s Import Competition, Innovation Strategies, and the Role of Unions

Abstract

This paper investigates the relationship between China’s import competition and the innovation strategies of domestic firms. Using firm level data from Italy spanning 20052010 and employing IV fixed effects estimation techniques, we find that the impact of China’s import competition on innovation varies depending on the type of goods imported (intermediate vs. final). Specifically, imports of final goods boost both product and process innovation, while imports of intermediate goods reduce both. Additionally, we extend the analysis to consider the role of unions in moderating these responses. We find that, in unionized firms, imports' impact on innovation is mitigated, specifically to protect workers' employment prospects.