ABSTRACT
This chapter examines the effect of input trade liberalization on firm research and development (R&D) by taking into account China’s special treatment on imported intermediate inputs. The nexus between firm innovation and trade liberalization is an important research subject in the empirical trade literature, as firm innovation is an important channel for firms to realize productivity gains from trade. The chapter aims to understanding the channels and mechanisms of the effects of trade liberalization on firm performance. It describes the data and measures of the key variables and presents empirical strategy and reports estimation results. The chapter examines changes in firm R&D in response to changes in trade liberalization, for two types of firms: processing firms and non-processing firms. Chinese firms are more eager to invest more in R&D to boost firm productivity to maintain their international competitiveness.
