The Effect Of Innovation On The Intensive And Extensive Margins Of China’s Export

China is now faced with strategic transformation in its trade development. It is pursuing structural improvement and quality upgrading of export instead of pure quantity growth. An increasing number of scholars have focused their study on China’s trade transformation from the perspective of dual margins (extensive and intensive margins). Extensive margin is defined as the export growth from new export firms, new products and export in new markets, while intensive margin is defined as the export growth generated from existing markets and existing products.Based on dual margins, this paper studies the effect of innovation on China’s export. First of all, it analyzes the influencing mechanism of innovation on export’s extensive and intensive margins. Then, it explores this effect by developing a theoretical model on extended Chaney framework. Based on theoretical results, this paper applies empirical analysis on three levels to examine innovation’s effect in China’s manufacturing industries and put forward policy recommendations. This paper’s theoretical contribution and main findings are as follows.(1) It introduces innovation and product quality in the heterogeneous firm model developed by Chaney. By exploring innovation’s effect on firms’ marginal cost distribution, product quality and product ranges, it studies innovation’s impact on the dual margins of export and contributes to the theoretical development of heterogeneous firms.(2) Using panel data in China’s manufacturing industries from2003to2010, the empirical analysis shows that innovation, measured by r&d expenditures, has a significant effect on both extensive and intensive margins and its elasticity on extensive margin is higher than intensive margin. Trade cost has greater effect on extensive margin and intensive margin is more vulnerable to economic shock.(3) Dividing manufacturing industries into two panels of labor-intensive and capital-intensive industries and applying empirical analysis respectively, it shows that in the labor-intensive industries, innovation has greater effect on intensive margin than extensive margin; in the capital-intensive industries, innovation is only significant to extensive margin.(4) Product innovation, measured by invention patent, and process innovation, measured by utility model patent and design patent have different effect on dual margins. In the labor-intensive industries, product innovation has greater effect on intensive margin than extensive margin, while process innovation has greater effect on extensive margin. In the capital-intensive industries, product innovation has greater effect on extensive margin while process innovation has greater effect on intensive margin.