Economics Seminar（2015-02）

Topic: Intermediate Input Imports and Innovation: Evidence from Chinese
Speaker: Qing Liu
Affiliation: University of International Business and Economics
Time:Tuesday, March 24 from 2:00-3:30pm
Location: Room 217, Guanghua Building 2

Abstract：
Innovation plays a key role in economic growth. In this paper, we investigate the effects of intermediate input tariff reduction on domestic firms' innovation activities. The input tariff reduction exerts two opposite effects on a firm's Make-or-Buy decision in innovation: It raises the Make decision as the cost of doing innovation becomes lower, but it raises the Buy decision because external technologies become cheaper. Using Chinese firm-level data from 1998 to 2007 which features a drastic input tariff cut in 2002 due to China' WTO accession, we find that input tariff cut results in less innovation taken by firms, supporting the Buy decision. This result is obtained using the difference-in-differences technique and robust to many specifications and concerns of the model. We provide a theoretical explanation to support this observation. Although the Buy decision is not necessarily surprising from theoretical point of view, the empirical finding does not seem to be in line with existing empirical results about trade liberalization on Chinese firms' performance.