Exports of intermediate goods and innovation: Evidence from China’s firms

Abstract

Based on the experience of developed countries, the production and export of intermediate goods have been observed to foster innovation within firms. This study investigates whether China's export of intermediate products has significantly enhanced the independent innovation capability of China’s firms. Using microdata and patent applications as a measure of innovation, we adopt the staggered PSM-DID method to explore the influence of China’s intermediate exports on firm innovation. We find that China's export of intermediate goods positively influences firm innovation, particularly utility patents. Domestic firms benefit more from this effect than foreign firms, and medium-high technology industries experience the most significant innovation impact. The export of intermediate goods stimulates innovation through the following channels: scale economies and employment structure optimization. These findings shed light on China's evolving innovation landscape.