The Inverted-U Relationship between Import Competition and China's Regional Innovation

Recent scholars have focused on the intriguing inverted-U relationship between import competition and innovation. Prior studies that measured import competition at the industry level have found this relationship to be nuanced, often failing to capture the full inverted-U curvature. This paper attempts to mitigate such a concern by measuring import competition at the province level in China. Our findings reveal a robust inverted-U pattern at this more aggregate level across diverse regions within China. Notably, the entry of China into the World Trade Organization (WTO) has intensified competition from foreign counterparts, leading to an earlier occurrence of the negative effect of import competition. Our finding broadens the scope of our understanding of the interplay between import competition and innovation, suggesting that the inverted-U relationship holds both at the micro- and macro-economic levels, across both developed and developing nations.