Lobbying or Innovation: Who Does What Against Foreign Competition

This paper studies the relationship between competition and firms' political influence. I use the China shock identification strategy to assess the impact of rising imports over the last two decades on US corporate lobbying. The empirical results are the following i) the increase in foreign competition has brought firms to increase their lobbying effort by approximately 35 percent per four-year period, ii) results are heterogeneous and the increase is focused on low productivity firms, iii) this increase does not target trade policies specifically but rather a variety of topics contributing to firms' competitiveness. I comment two mechanisms: First, firms for which innovation is too expensive naturally increase their lobbying effort in proportion to the threat of competition, and second differentiation (though innovation) and exit concentrate the lobbying effort on fewer firms, helping to decrease free-riding.