Aoife Hanley (Kiel Institute)
Exporting is hailed as an important factor for the growth of developing economies (Salomon and Shaver, 2005). This growth is largely assisted by innovation. However, evidence of export induced innovation has been mixed for China, largely due to the failure of econometric models to capture the full extent of firm-to-firm learning. To address this modelling deficit, we take firm-level data for China’s 229 neighbourhoods, applying a modified matching model. Our goal is to explain new product introductions, as firms increase their exposure to local exporters (indirect exporting effect). Simultaneously, we control for the direct exporting effect - changes in innovation that follow a firm’s decision to export. We find (unsurprisingly) strong and significant direct effects - but indirect effects also play a part. Even firms dedicated to pure assembly (where we expect a weaker incentive to innovate) introduce more new products with increased exposure to other export processors. Our findings are relevant for policy makers in middle- and low-income countries seeking to understand how China has succeeded in leveraging innovation from its rapid export growth.
Yundan Gong (King’s College London) – Aoife Hanley (Kiel Institute)