Globalization and Profitability of US Firms: The Role of Intangibles

China's admission into the WTO in 2001 heralded a new era of globalization, increasing both import competition in domestic markets and foreign opportunities for US firms. In the aggregate, the average annual profitability of US public firms increased by 11.5% from pre-globalization period (1984-2002) to post-globalization period (2003-2019). This increase in overall aggregate profitability was primarily driven by the jump in foreign profitability by 47.4% of firms in the S&P 500 index, which are larger and have more intangible assets created by R&D and SG&A expenditures. In contrast, following globalization, the average aggregate domestic profitability of US firms remained flat, and firms employed more capital to generate sales. Firms with higher intangible assets beneted more from globalization.