--- canonical_url: "https://csls.ca/research/does-import-competition-reduce-domestic-innovation-evidence-from-the-china-stock-and-firm-level-data-on-canadian-manufacturing/" title: "Does Import Competition Reduce Domestic Innovation? Evidence from the ‘China Stock’ and Firm-Level Data on Canadian Manufacturing" author: name: "CSLS" url: "https://csls.ca/author/cslc/" date_published: "2026-07-02T11:33:54+00:00" date_modified: "2026-07-07T07:34:22+00:00" post_type: "research" summary: "" post_tag: - "Canadian manufacturing" - "China shock" - "firm-level data" - "import competition" - "innovation" - "R&D" - "reallocation" - "total factor productivity" country_focus: - "Canada" - "China" province_region: - "National" research_theme: - "Labour Markets" - "Technology and Innovation" - "Trade" featured_image: "https://csls.ca/wp-content/uploads/2026/07/old-reports_hero_banner_bg.webp" status: "publish" --- # Does Import Competition Reduce Domestic Innovation? Evidence from the ‘China Stock’ and Firm-Level Data on Canadian Manufacturing Canonical URL: https://csls.ca/research/does-import-competition-reduce-domestic-innovation-evidence-from-the-china-stock-and-firm-level-data-on-canadian-manufacturing/ # Does Import Competition Reduce Domestic Innovation? Evidence from the ‘China Stock’ and Firm-Level Data on Canadian Manufacturing [Download full PDF report](https://csls.ca/pdf/csls2019-03-1.pdf) Cite this report × Cite this report as: Kim, Myeongwan. 2019. “Does Import Competition Reduce Domestic Innovation? Evidence from the ‘China Stock’ and Firm-Level Data on Canadian Manufacturing.” CSLS Research Report 2019-03. Ottawa: Centre for the Study of Living Standards. https://csls.ca/research/does-import-competition-reduce-domestic-innovation-evidence-from-the-china-stock-and-firm-level-data-on-canadian-manufacturing/ ## Author: - Myeongwan Kim Centre for the Study of Living Standards (CSLS) ## Report 2019-03 August 2019 57 pages ## Related research [Productivity: Key to Economic Success Centre for the Study of Living Standards (CSLS) March 1998 | Report 1998-01 | 99 pages](https://csls.ca/research/productivity-key-to-economic-success/) [New Estimates of Manufacturing Productivity Growth for Canada and the United States Andrew Sharpe March 1999 | Report 1999-02 | 21 pages](https://csls.ca/research/new-estimates-of-manufacturing-productivity-growth-for-canada-and-the-united-states/) [Productivity Trends in the Construction Sector: A Case of Lagging Technical Progress Centre for the Study of Living Standards (CSLS) November 2001 | Report 2001-03 | 177 pages](https://csls.ca/research/productivity-trends-in-the-construction-sector-a-case-of-lagging-technical-progress/) [Productivity Trends in Natural Resources Industries in Canada Centre for the Study of Living Standards (CSLS) February 2003 | Report 2003-01a | 69 pages](https://csls.ca/research/productivity-trends-in-natural-resources-industries-in-canada/) [An Analysis of Productivity Trends in the Forest Products Sector in Canada Centre for the Study of Living Standards (CSLS) February 2003 | Report 2003-01b | 64 pages](https://csls.ca/research/an-analysis-of-productivity-trends-in-the-forest-products-sector-in-canada/) [Why Are Americans More Productive Than Canadians? Andrew Sharpe June 2003 | Report 2003-03 | 83 pages](https://csls.ca/research/why-are-americans-more-productive-than-canadians/) [Indicators of Innovation in Canadian Natural Resource Industries Andrew Sharpe, Olivier Guilbaud May 2005 | Report 2005-03 | 52 pages](https://csls.ca/research/indicators-of-innovation-in-canadian-natural-resource-industries/) [The Diffusion and Adoption of Advanced Technologies in Canada: An Overview of the Issues Andrew Sharpe December 2005 | Report 2005-05 | 23 pages](https://csls.ca/research/the-diffusion-and-adoption-of-advanced-technologies-in-canada-an-overview-of-the-issues/) [Competitive Intensity as Driver of Innovation and Productivity Growth: A Synthesis of the Literature Andrew Sharpe, Ian Currie June 2008 | Report 2008-03 | 80 pages](https://csls.ca/research/competitive-intensity-as-driver-of-innovation-and-productivity-growth-a-synthesis-of-the-literature/) [Productivity Drivers in British Columbia: Strategic Areas for Improvement Andrew Sharpe, Jean-François Arsenault December 2008 | Report 2008-09 | 33 pages](https://csls.ca/research/productivity-drivers-in-british-columbia-strategic-areas-for-improvement/) ## Abstract ## Résumé EN FR Copy link Email LinkedIn A key economic issue in Canada is the declining Business Enterprise Research and Development in manufacturing since the early 2000s. Accompanying this, the total factor productivity (TFP) growth in manufacturing slowed after 2000. However, there has not been a definitive explanation for these trends. To deepen our understanding of this phenomenon, we focus on the increasing Chinese import share in the total domestic absorption in Canadian manufacturing since the early 2000s, which appears to be driven by positive supply shocks within Chinese manufacturing. Based on a firm-level database covering all incorporated firms in Canadian manufacturing, we find that rising Chinese import competition led to declines in R&D expenditure and TFP growth within firms but reallocated employment towards more productive firms and induced less productive firms to exit. The negative within-effects were pronounced for firms that were initially smaller, less profitable, and less productive. These firms also experienced declines in their profit margins due to rising Chinese import competition while larger and betterperforming firms did not. Our estimates imply that rising Chinese import competition can explain about 7 per cent of the total decline of $1.36 billion (2007 CAD) in R&D expenditure in Canadian manufacturing between 2005 and 2010. Although it led to declines in TFP within firms, the positive reallocation effects more than offset the negative within-effect. Had there been no increase in Chinese import competition between 2005 and 2010, TFP in Canadian manufacturing would have declined by 1.26 per cent per year instead of the actual 1.09 per cent per year over this period. Un enjeu économique clé pour le Canada est le déclin des dépenses en recherche et développement des entreprises dans le secteur manufacturier depuis le début des années 2000. Parallèlement, la croissance de la productivité multifactorielle (PMF) dans le secteur manufacturier a ralenti après 2000. Toutefois, aucune explication définitive n’a encore été apportée à ces tendances. Afin d’approfondir notre compréhension de ce phénomène, nous nous concentrons sur la part croissante des importations chinoises dans l’absorption intérieure totale du secteur manufacturier canadien depuis le début des années 2000, qui semble être attribuable à des chocs d’offre positifs au sein du secteur manufacturier chinois. À partir d’une base de données au niveau des entreprises couvrant l’ensemble des entreprises constituées en société du secteur manufacturier canadien, nous constatons que la hausse de la concurrence des importations chinoises a entraîné un recul des dépenses en R-D et de la croissance de la PMF au sein des entreprises, tout en réaffectant l’emploi vers des entreprises plus productives et en incitant les entreprises moins productives à quitter le marché. Les effets négatifs internes étaient plus marqués pour les entreprises initialement plus petites, moins rentables et moins productives. Ces entreprises ont également vu leurs marges bénéficiaires reculer en raison de la concurrence accrue des importations chinoises, contrairement aux entreprises plus grandes et plus performantes. Nos estimations indiquent que la hausse de la concurrence des importations chinoises peut expliquer environ 7 % du recul total de 1,36 milliard de dollars (en dollars canadiens de 2007) des dépenses en R-D dans le secteur manufacturier canadien entre 2005 et 2010. Bien qu’elle ait entraîné un recul de la PMF au sein des entreprises, les effets positifs de réaffectation ont plus que compensé cet effet négatif interne. En l’absence de toute hausse de la concurrence des importations chinoises entre 2005 et 2010, la PMF du secteur manufacturier canadien aurait reculé de 1,26 % par année, plutôt que le taux réel de 1,09 % par année observé durant cette période. [Download full PDF report](https://csls.ca/pdf/csls2019-03-1.pdf)