Being flooded with cheap stuff from China actually forces local companies to stop being lazy and invent something truly groundbreaking.
Common wisdom suggests that low-cost foreign competition crushes local industry, but this study of Spanish firms found that import competition specifically drove 'radical' innovation—new-to-the-market products—rather than incremental changes, especially in regions with dense manufacturing ecosystems.
Innovation under Chinese import competition: Evidence from firms in Spanish regions
SSRN · 6471157
This paper examines how exposure to Chinese import competition shapes firms’ innovation and whether regional context amplifies these effects. We move beyond invention-based proxies by focusing on product and process innovation and, within product innovation, distinguishing radical from incremental innovation. We combine a representative panel of Spanish firms with sector-region measures of exposure to Chinese imports and identify causal effects using an instrumental-variables strategy. We find t