NEW RESEARCH | Increased imports reduce willingness to innovate

When manufacturing companies face competition from foreign products, the desire to innovate decreases. This is the conclusion of Olga Lark’s research, which focused on what happens when import competition increases at the local level.

Congratulations, you have recently completed your PhD at Lund University! One of the articles in the doctoral thesis deals with import competition. Tell us about it.

– There are several previous studies that have examined what happens to the willingness to innovate globally when competition from imported products increases. Some argue that it discourages innovation. Other studies show that it rather has a positive effect on firms’ incentives to develop products. But this has mainly looked at what is happening in the whole economy, at the national level. I was curious about what happens to the willingness of manufacturing companies to innovate at municipal and local level.

– I mean, when a foreign variant of a Swedish-made product enters the market in northern Sweden, it is quite unlikely to affect the level of competition in southern Sweden. Companies mainly do business with other companies that are geographically close, so competition is local.

What do the results show?

– Manufacturing companies are discouraged from investing in innovation as competition from foreign products, at municipal and local level, increases. In this study, I use patents as a measure of innovation. More precisely, the study shows that a 10% increase in foreign competition reduces the number of patent applications by 4.9%.

– The results also show that both municipalities and local labor markets are relevant geographical units for assessing the effects of import competition.

Was there anything in your research that surprised you?

– I already knew that it is mainly the big companies that are involved in innovation. Even so, I was surprised at how small a proportion of all patent applications come from manufacturing companies. Only 6% of all patents in my sample belong to manufacturing companies. And of these, only 2% are manufacturing companies producing intermediate goods – that is, goods used in the production of other goods.

Based on your research, what messages do you have for politicians and other decision-makers?

– In a large country such as Sweden, with varying local industrial structures, these differences need to be taken into account when designing policy measures to strengthen innovation capacity.

Contact olga@lark.ee

More about the thesis
Olga Lark recently completed her PhD in Economics at Lund University with the thesis Globalization, Gender Inequality, and Firm Innovation. In addition to the study described in this article, three other separate studies on globalization and gender discrimination are included in the doctoral thesis. All studies can be read in full on Olga Lark’s website.