Effects Ofexporting On Chinese Industrialfirms’ Innovation

The relationships between innovation and exporting have always been the important issue in international trade academia. With the heterogeneous firm trade theory emerging, it provides a deeper insight for relative discussion into the firm-level. What effect does exporting have on firm innovation? Does the effect differentiate among firms according to their different characteristics? Since China is the world’s largest exporter and committed to making it an innovative country, the answers of these questions are of considerable realistic significance. Based on the heterogeneous firm trade theory, this paper examines the effect of exporting on firm innovation, which is measured by product innovation index. Also, the paper examines the differentiation of this effect among firms in different types.Based on reviews of the relative literatures, this paper first presents a simple theoretical model of firm decision to innovate in order to analyze the mechanism of innovation decision of firms (including exporters and non-exporters) and explain why exporters tend to be more innovative according to the heterogeneous firm trade theory. Also, the paper analyzes qualitatively if the effect of exporting on firm innovation differentiates among firms with different exporting experience and technology levels. Secondly, after descriptively analyzing the relationship between exporting and innovation, this paper investigates empirically not only the effect of exporting on firm innovation but also how exporting experience and technology gap affect the influence of exporting on innovation by using the micro data of China industrial firms above designated size. The empirical test reveals that export behavior has positive effect on firm innovation. With regards to firm exporting experience, continuously exporting behavior can enhance firm innovation, but the first entry of exporting has negative effects on firm innovation. When compared with technologically lagging firms, technologically leading firms’innovation outcome can be improved more significantly by exporting. In addition, some factors such as R&D input, firm size, financial restrain, market competition and subsidy also have influence on firm innovation. The empirical results suggest that exporting has a positive effect on Chinese industrial firm innovation, which can be influenced by firm characteristics such as exporting experience and technology level. At the same time, the influence of internal and external environment factors on firm innovation can’t be ignored. Finally, this paper puts forward some useful policy suggestions based on empirical evidences.