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Disentangling the effects of endogenous export and innovation on the performance of Chinese manufacturing firms

Xiaoyong Dai, Zao Sun and Hang Liu

China Economic Review, 2018, vol. 50, issue C, 42-58

Abstract: This paper disentangles the effects of export and innovation on firm-level markup and productivity. Based on a large sample of Chinese manufacturing firms, we explicitly account for firms' endogenous export and innovation decisions, and isolate their impacts on firms' future performance, using a propensity score matching approach with multiple treatments. The results indicate that starting to export alone negatively affects firm-level markup and productivity, while starting to innovate alone has a significant positive impact. There is a complementarity between export and innovation in improving firms' performance. The negative effect of starting to export alone on revenue productivity may reflect the decrease of price-cost markup, rather than a change in physical productivity. Our study contributes to explaining puzzling results of exporter performance for China. The results also suggest that firms should establish domestic market power through innovation before turning to export markets.

Keywords: Export; Innovation; Markup; Productivity; Multiple treatments (search for similar items in EconPapers)
JEL-codes: D24 F14 O32 L11 L60 (search for similar items in EconPapers)
Date: 2018
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China Economic Review is currently edited by B.M. Fleisher, K. X. D. Huang, M.E. Lovely, Y. Wen, X. Zhang and X. Zhu

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