R & D Expenditures and Import Competition: Recent Evidence for the U.S.

Abstract

Aims: The large and growing U.S. trade deficit since the 1980s has sparked some interests in the determination of the impact of trade (foreign imports) on research and development (R & D) expenditures response to slow down the rising U.S. imports of goods and services and reduce the trade deficit. In this paper we explore the extent to which R & D expenditures have been used by U.S. manufacturing industries as a strategic variable to recapture or gain market share from foreign companies in light of the continued increase in import competition over the 2000-2010 decade. Study Design and Methodology: Using panel dataset over the 2000-2010 period for a cross section of twenty two-digit SIC industries, we estimate the effects of import competition and some control variables (real exchange rate, real income, unit labor cost, and shipment of goods and services) on the share of R & D expenditures to net sales in low and high-tech U.S. manufacturing industries Results and Conclusion: Our findings show that the rise in import competition continues to elicit increased R&D (process and product) expenditures response for the high-tech industries, not for the low-tech industries. A policy implication which may be drawn from the study suggests that incentives to promote and encourage domestic manufacturing industries in the form of subsidy, or tax credits to contend with import competition may only be productive for high-tech industries, not so for the low-tech.