The effect of import competition on firm innovation: evidence from China

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Abstract
Purpose: This paper examines the effects of import competition on firm innovation strategies in emerging economies, with a focus on China’s manufacturing sector. Design/methodology/approach: This study selects Chinese listed manufacturing firms from 2010 to 2022 as the sample and employs baseline regression analysis to assess the effects of import competition on overall firm innovation, breakthrough innovation, and incremental innovation. A threshold model is employed to examine the nonlinear relationship between import competition and innovation. Findings: The results show that import competition negatively affects firm innovation, with robustness tests confirming these results. Heterogeneity tests reveal industry- and firm-specific impacts, whereas regional innovation moderates the relationship between import competition and innovation. Further investigation reveals that moderate import competition mitigates overall innovation suppression and facilitates breakthrough innovation, whereas specific intensity ranges significantly inhibit incremental innovation, thus demonstrating nonlinear threshold effects in their relationship. Research limitations/implications: The limitation of this study lies in its sample, which is confined to Chinese manufacturing firms and may not fully represent all enterprises. The findings provide a new perspective for understanding the relationship between import competition and firm innovation, highlighting the factors that are important to consider in policy formulation and enterprise management. Practical implications: The results have significant implications for policymakers and business managers, especially when developing strategies to promote innovation and respond to import competition. Originality/value: This research highlights the threshold effects of import competition, suggesting that moderate competition may stimulate firm innovation. Furthermore, this research enriches the discourse on the role of import competition in firm innovation.

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