Import Competition, Product Switching, and R&D Activities

Using Japanese plant product-level data, this study focuses on the impact of increasing import competition pressure on changes in product portfolios by examining product entry and exit. We also consider the role of R&D activities at the plant level. While previous research on the adjustment of product portfolios for multi-product firms has emphasized the narrowing of products to core products, we show that firms engaged in R&D activities actively replace existing products with new ones and expand into new business fields due to increased import competition. These results are consistent with those of several studies on the relationship between competition and innovation. We also find that these effects are more pronounced in regions with larger public R&D stocks and in high-tech sectors.