Foreign Import Competition and Green Innovation: The Impact of Chinese Trade Exposure on Technical Change in Europe

ABSTRACT This paper examines the impact of Chinese import competition on innovation. By using detailed patent information on the manufacturing industries of thirteen European countries and trade data from 1995 to 2015, we estimate and compare the effect of rising Chinese imports on the growth rates of industry‐wide patent stocks in generic and green inventions. The results reveal that Chinese import competition had no overall impact on total innovation at the industry level. However, the trade shock accelerated green innovation, particularly in lagging industries. We argue that an escape‐competition effect of European firms to crowd out and differentiate from Chinese competitors could motivate the empirical evidence. Our findings account for the endogeneity of trade exposure and are robust to confounding sectoral patenting trends.