Globalization and Defensive Innovation: The Impact of Import Liberalization on Innovation in Korea

To test the impact of globalization on innovation in Korea, the current paper applies times series techniques for the period 1980-2011. Globalization is represented in terms of import liberalization, while innovation is measured by total factor productivity and the number of patents. Banerjee, Dolado, and Mestre's small sample cointegration test and ARDL variance bounds test are employed as the cointegration tests. The GMM estimation results show that the higher tariff rate is likely to lead to innovation. In some cases, the coefficient of tariff rate is significant at the 1 percent level of significance. Even if the error correction model is estimated, there is no significant evidence of the positive impact of import liberalization on innovation. Thus, the positive impact of globalization on defensive innovation is not supported.