Foreign Technology Dependence, Competition Pressure and Firm‐Level Innovation Mode Choice: Theory and Evidence From China
Summary
This paper combines empirical facts and a structural theoretical model to investigate how Chinese firms choose between self-innovation and collaborative innovation (outsourcing R&D, university collaboration, or importing foreign technology) when faced with rising foreign competition and foreign-technology dependence. The authors document that collaborative innovation generally yields better innovation performance than self-innovation. Under intensified foreign competition, only firms in the upper-middle percentiles of R&D capacity tend to diversify their innovation modes; smaller or lower-capacity firms do not change behaviour appreciably. The paper develops a sequential-choice model (innovation mode, R&D investment, markup) to explain these patterns, estimates the model parameters, and runs counterfactuals — for example, varying foreign-technology dependence — to identify policy-relevant paths to improve firm-level innovation outcomes amid international uncertainty.
Key Points
- Empirical stylised facts: collaborative innovation (outsourcing, university links, imported tech) outperforms pure self-innovation on measured innovation outcomes.
- Heterogeneous firm response to foreign competition: only firms with upper-middle R&D capacity diversify their innovation mode when competition intensifies.
- Theoretical contribution: a structural model captures sequential firm choices (mode, R&D spend, optimal markup) and explains why only a subset switch modes in equilibrium.
- Estimation and counterfactuals: the model is structurally estimated and used to simulate effects of varying foreign-technology dependence and other shocks.
- Policy implication: reducing harmful dependence on foreign technologies and supporting mid-tier R&D firms to diversify can enhance overall innovation resilience.
Context and relevance
The study sits at the intersection of international trade, industrial policy and innovation economics. It is timely given growing global tech tensions and policy moves to manage foreign-technology dependence. For policymakers, innovation managers and researchers, the paper offers evidence-based insight into which firms are likely to adapt their innovation strategies under import competition and how targeted support could alter aggregate innovation performance.
Author’s take
Punchy summary: the authors show that collaborative routes to innovation matter — especially for firms that already have some R&D muscle. The structural approach means the results go beyond correlation and let you explore “what if” scenarios relevant to policy and firm strategy.
Why should I read this?
Look — if you care about how firms survive tougher foreign competition or whether importing tech helps or hurts domestic innovation, this paper saves you time. It tells you which firms will change tack, why they do it, and what could fix things at scale. Bite-sized: top-ish R&D firms pivot to collaboration, weaker ones don’t — and that matters if you’re designing support or trade policy.
Source
Source: https://onlinelibrary.wiley.com/doi/10.1111/roie.70020?af=R
