Being flooded with cheap stuff from China actually forces local companies to stop being lazy and invent something truly groundbreaking.
March 27, 2026
Original Paper
Innovation under Chinese import competition: Evidence from firms in Spanish regions
SSRN · 6471157
The Takeaway
Common wisdom suggests that low-cost foreign competition crushes local industry, but this study of Spanish firms found that import competition specifically drove 'radical' innovation—new-to-the-market products—rather than incremental changes, especially in regions with dense manufacturing ecosystems.
From the abstract
This paper examines how exposure to Chinese import competition shapes firms’ innovation and whether regional context amplifies these effects. We move beyond invention-based proxies by focusing on product and process innovation and, within product innovation, distinguishing radical from incremental innovation. We combine a representative panel of Spanish firms with sector-region measures of exposure to Chinese imports and identify causal effects using an instrumental-variables strategy. We find t