The Long-term Effects of Trade Liberalization on Innovation : The Escape Competition Effect

The Great Liberalization was a historical process between 1986 and 1994 that consisted in developing countries adopting open trade policies to integrate themselves, in economic and financial terms, with the rest of the world. This paper analyzes the effects of this process on innovation. I use two-way fixed effects to estimate the main results, but I also include other estimates to obtain robustness in the results. I use several measures as proxy of the Innovation, such as Patents, Industrial Application, Labor Productivity and R&D Expenditures. I conclude that the Great Liberalization boosted innovation in these countries and that the effects are persistent even up to 30 years after the shock. Additionally, I find that one possible channel of transmission is the entry of foreign companies into these countries that have adopted open trade policies