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Is Globalization Harming Innovation?

Summary:
New studies show that, while greater competition from China has contributed to an increase in patents in Europe, it has reduced the innovation rate in the US. These divergent outcomes are partly attributable to changes in the manufacturing sector. MUNICH – Globalization encourages innovation, or so the conventional wisdom goes. But emerging evidence suggests that this assumption, like so many economic shibboleths, must be rethought. The Paradoxes of the Bangladesh Miracle Mamunur Rashid/NurPhoto via Getty Images Can We End the Pandemic? PS OnPoint Getty Images

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New studies show that, while greater competition from China has contributed to an increase in patents in Europe, it has reduced the innovation rate in the US. These divergent outcomes are partly attributable to changes in the manufacturing sector.

MUNICH – Globalization encourages innovation, or so the conventional wisdom goes. But emerging evidence suggests that this assumption, like so many economic shibboleths, must be rethought.

The conventional wisdom is based on a 1991 study by Gene M. Grossman and Elhanan Helpman, which showed that, by creating larger, more integrated markets, globalization bolstered efficiency, encouraged specialization, and strengthened incentives for profit-seeking entrepreneurs to invest in research and development (R&D). The result was 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 unambiguous. On one hand, Nicholas Bloom and his colleagues find that greater competition from China has contributed to an increase in patents in Europe. On the other hand, David Autor and his colleagues point out that the “China shock” has reduced the innovation rate in the United States.

What explains these divergent...

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