Abstract
Abstract The dramatic increase in China’s exports after its accession to the World Trade Organization offers a window of opportunity for learning the innovative behavior of firms under competitive distress. Using manufacturing firm-level data, we quantify the effects of foreign competition on innovation in Uruguay. Our estimates show that a higher level of foreign competition reduces innovation inputs (acquisition of new machines, equipment, and software) and outputs (process and product innovations). These adverse effects are larger for firms in business groups and smaller for more productive firms and firms with more skilled labor.
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