Does the offshoring of production degrade or enhance the innovative capabilities of manufacturing firms? We contribute to this debate by exploiting a policy shock that differentially affected the ability of Taiwanese firms to offshore some products to China. We find causal evidence that...

In principle, firms in developing countries benefit from the fact that advanced technologies and products have already been developed in industrialized countries and can simply be adopted, a process often referred to as industrial upgrading. But for many firms this advantage remains elusive....