Innovations and Export Performance: Firm Level Evidence from China

Objective: The goal of this article is to study the relationship between innovations and exporting of Chinese firms and identify which type of innovation contributes most to the probability of exporting. Research Design & Methods: We refer to the recent strand in the new trade theory literature that stresses the importance of firm productivity in entering export markets. We distinguish between product, process and managerial innovations that can increase productivity. The empirical investigation is based on the probit model and the firm-level data set covering two years: 2003 and 2012. Findings: Our empirical results show that the probability of exporting is positively related to product and process innovations, firm size, foreign capital participation and foreign technology. Moreover, we find that in 2003 process innovations were more important for export performance than product innovations, while in 2012 it was the opposite. Implications & Recommendations: Firms should coordinate their strategic assets and resources for innovation in order to enhance their overall level of competitiveness. Governments should work on establishing stronger institutional environment necessary to provide firms with protection of intellectual property rights, an easier access to financing of innovation, a lower tax burden upon innovative firms, the higher quality of human resources to firms and more supportive policy packages. Contribution & Value Added: In contrast to previous that used only the R&D spending as the measure of innovation in our study we also use innovation outcomes. In particular, we determine which innovation type is of greatest importance, having controlled for the set of other firm characteristics.