Capital goods trade liberalization and firm innovation: Evidence from China

摘要

Research on input trade liberalization and firm innovation has yielded mixed conclusions. This paper asks whether capital goods trade liberalization constitutes a distinct channel that promotes innovation. Exploiting China's 2001 WTO accession, which sharply reduced tariffs on capital goods, and cross-industry variation in pre-WTO tariff rates, we show that manufacturing firms in industries facing larger cuts experienced significantly greater post-WTO innovation. Specifically, a one-percentage-point higher pre-WTO capital goods tariff raises the post-WTO probability that a firm files at least one patent by 1.36 percentage points (41% of the pre-WTO mean of 3.35%) and increases average patent filings by 3.2% of the pre-WTO mean. Our results are consistent with firms gaining greater access to imported, technology-embodied capital goods, which complemented in-house R&D and spurred adaptive innovation, as reflected in a disproportionate rise in utility-model patents.