Does innovation matter for chinese



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ECONOMICS
DOES INNOVATION MATTER FOR CHINESE

HIGH-TECH EXPORTS?

A FIRM-LEVEL ANALYSIS
by
Dahai Fu

Business School

University of Western Australia
International Trade and Economics

University of International

Business and Economics

Beijing China
Yanrui Wu

Business School

University of Western Australia
Yihong Tang

School of International Trade and Economics Central University of Finance and Economics Beijing China
DISCUSSION PAPER 11.21
DOES INNOVATION MATTER FOR CHINESE HIGH-TECH EXPORTS?

A FIRM-LEVEL ANALYSIS1

Dahai Fu, Yanrui Wua,ba and Yihong Tangc



a Economics, Business School, The University of Western Australia, Perth, Australia; b School of International Trade and Economics, University of International Business and Economics, Beijing, China; c School of International Trade and Economics, Central University of Finance and Economics, Beijing, China

DISCUSSION PAPER 11.21

Abstract

This paper examines the effect of innovation on export decision in Chinese high-tech firms during the period of 2005-2007. Using a parametric, instrumental variable approach and a non-parametric matching method, we find that firm-level innovation efforts, measured by R&D spending and new product output, play only a minor role for domestic exporters. Foreign-invested firms dominate the high-tech exports but do not rely on indigenous innovation activities. These results thus confirm prior findings that the success of Chinese high-tech exports does not result from heavy R&D expenditure and technological progress. Moreover, different types of innovation measures show different impacts on the likelihood of exporting. The impacts of innovation on exporting vary widely across industries and Chinese regions.



Key words: Exporting, Innovation, High technology, China

JEL classifications: F14; O32; O53

1. Introduction


Over the past two decades, the global map of exports has changed dramatically due to the arrival on the market of high-technology products from developing countries. The striking transformation in the export pattern has led economists to question whether the success of high-tech exports from developing countries is real or just a ‘statistical illusion’ (Srholec 2007). Although some optimists consider it a positive signal that emerging economies are climbing up the ladder in the global value chain and competing head-to-head with developed countries in high-tech0, some skeptics have pointed out that the expansion of the high-tech exports from developing countries is largely due to their active engagement in the labor-intensive processing stages within high-tech industries resulting from the international fragmentation of production (Lall, 2000; Mayer et al., 2002; Srholec, 2007; Athukorala, 2009).

This paper contributes to this debate by examining whether firm-level innovation enhances the likelihood of exporting in the context of the Chinese high-tech sector during the period of 2005-2007. Several authors have analyzed the impact of innovation on export participation at the firm level. Examples include Caldera (2010) on Spain, Damijan et al. (2010) on Slovenia and Van Beveren and Vandenbussche (2010) on Belgium. China’s case is especially interesting for the following two reasons. First, its high-tech exports have been growing at an average annual rate of 36.1% during the post-WTO period (2002-2009) and account for over 30% of China’s total exports in recent years. As a result, in 2006, China overtook the U.S. and the E.U. to become the largest exporter of high-tech products worldwide (World Bank, 2008). Second, China’s government has adopted encouraging policies in high-tech industry since the 1990s with the aim of promoting technological progress and accelerating the development of high-tech industry. However, the dominance of foreign-invested enterprises with lower R&D expenditure in the high-tech exports has cast doubt on the government’s policy on high-tech industries. Whether domestic firms can become major players through indigenous innovation will matter for the sustainable growth of Chinese high-tech exports in the next few decades. Thus, this paper has important policy implications.

In this paper, we test the relation between innovation activities and the likelihood of exporting in the context of the Chinese high-tech sector. 0 The differences between foreign-invested enterprises and domestic firms are considered carefully. The endogeneity of innovation is examined using an instrumental variable (IV) approach and a non-parametric matching technique to double-check the impact of innovation on export participation. In addition, we analyze this relation in key industries and provinces. Our main findings can be summarized as follows. First, innovation activities play a minor role in determining export propensity for Chinese high-tech firms. Second, innovation efforts, measured by R&D spending and new product output, are not a factor contributing to the export propensity of foreign-invested enterprises, whereas they have a positive but small impact on the likelihood of exporting for indigenous firms. Third, the effects of different types of innovation on firm export participation differ, although it is unclear which is more important. Fourth, the effects of innovation on export propensity vary significantly across industries and provinces.

The rest of the paper is organized as follows. We present an overview of innovation and export performance in the Chinese high-tech sector in Section 2 and review the relevant literature in Section 3. The empirical model and data are discussed in Section 4. The baseline regression results and discussion are presented in Section 5, with Section 6 presenting some further analyses. Section 7 concludes the paper.





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