Causal Relationships Between Innovation And Exporting Of Firms

The relationships between innovation and exporting have been the crucial answer about whether the development of export can be sustainable or not in China for a long time. However, there is less convinced that innovation can improve firm exporting, or vice versa. Using product innovation and R&D input to measure firm innovation actives, this paper tries to discuss the bi-directional causal relationships between exporting and innovation by a micro perspective.Based on the related literature review, this paper first gives a simple model to explain and analyze the causal mechanism of innovation and exporting according to the latest development of heterogeneous firm trade theory. Then using a micro data of China industrial firms above designated size, this paper studies the causal relationship between product innovation, R&D input and exporting separately and tries to discuss the effect of export or innovation on productivity. In order to give some more robust estimations, Bivariate Probit model, Propensity Score Matching and other methods are employed in the paper to avoid the endogenous problems due to causal effect between innovation and exporting. Generally speaking, the empirical study suggests that there are positive relationships between product innovation, R&D input and firm export. Both activities of exporting or innovation will have a positive impact on firm productivity. This indicates that firms’innovation activities can enhance the competitive ability of exporting and increase the probability to export, what is more, exporting also give firms more impetus for further innovation. The interaction between exporting and innovation has being to make a virtuous circle of trade growth which enhance the foundation for a sustainable development of China export trade and economic growth. In addition, combined with the background of the transitional character of Chinese economy, the positive effects of reciprocal causation have great difference between different samples by export intensity, regions and firm patterns. The different causal relationships mean the implementation of the current trade policies need to be more precise and targeted. Finally, this paper puts forward some useful policy suggestions based on the above empirical evidence.