Abstract
Recent theoretical analysis and empirical studies have emphasized that firms’ innovation could significantly improve export growth. However, the positive effect of innovation on exports is likely to change due to unstable domestic offsetting for innovation and increasing worldwide competition for trade. This study aims to explore the dynamic link between them. We first develop a theoretical model between innovation and export growth based on the theory of heterogeneity. Export growth is measured through the dimensions of extensive margin and intensive margin so as to better investigate the effect of innovation on export performance. The propositions of mechanism analysis reveal that the effect of innovation on exports is non-linear rather than sustainable. An empirical study is followed to test the propositions by using data from a representative panel of Chinese manufacturing firms. Consistent with the theoretical predictions, the results show an inverted U-shaped relationship between innovation and extensive margin and a U-shaped relationship between innovation and intensive margin. The non-linear relations are verified by a threshold effect test. Further study shows less innovation and more firms on the left side of the relation curves. The distribution suggests irregular innovation ability among the exporters. Moreover, the role of innovation is more important for export growth and the corresponding threshold is higher in terms of high technological sectors. The contribution of this study is to introduce a comprehensive framework to investigate the dynamic effect of innovation on export growth, serving as a modest spur to induce the following studies to explore the sustainability of innovation effect.
Highlights
The theory of economic growth reveals that the economy could achieve sustainable growth without external forces due to the endogenous promotion effect of innovation progress
The results suggest that there is a non-linear inverted U-shaped relationship between innovation and extensive margin, whereas there is a non-linear U-shaped relationship between innovation and intensive margin
Different from the extensive margin, both the monomial and quadratic coefficients are insignificant for intensive margin, indicating that there is no direct relationship between innovation and export scale
Summary
The theory of economic growth reveals that the economy could achieve sustainable growth without external forces due to the endogenous promotion effect of innovation progress. Different from the results of previous studies, wherein firms’ innovation can positively and sustainably affect the export growth, we found a non-linear relationship between innovation and exports, which is in line with the theoretical predictions. The fact that firms’ innovation cannot sustainably promote export growth can be explained by insufficient intellectual property protection, which is likely to increase the innovation risk due to the imitative threat from others. The synergistic effect of innovation and productivity on export growth is significant and positive, indicating that innovation can promote export growth through improving firms’ productivity. The statistics of firms based on the inflection point shows less innovation and more firms on the left side of the relation curves This distribution shows a low innovation level and uneven innovation ability among exporters
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