Is globalization hurting innovation? by Dalia Marin

New studies show that while increased competition from China has contributed to an increase in patents in Europe, it has reduced the rate of innovation in the United States. These divergent results are in part attributable to changes in the manufacturing sector.

MUNICH – Globalization encourages innovation, at least that’s what we believe. But new evidence suggests that this assumption, like so many economic arguments, needs to be rethought.

Conventional wisdom is based on a 1991 study by Gene M. Grossman and Elhanan Helpman, which showed that by creating larger and more integrated markets, globalization has increased efficiency, encouraged specialization, and strengthened incentives for for-profit entrepreneurs to invest in research and development (R&D). This has resulted in an increase in the global rate of innovation.

Yet recent research on China’s global impact indicates that the relationship between globalization and innovation is not so clear. On the one hand, Nicholas Bloom and his colleagues find that increased competition from China has contributed to an increase in patents in Europe. In contrast, David Autor and his colleagues point out that the “Chinese shock” reduced the rate of innovation in the United States.

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