6. Further Analyses
6.2 Evidence of the industry-level and province-level
In this section, we examine the impacts of innovation activities on export participation at the major industry and province levels. Table 10 reports the marginal effects of innovation by industry using the pooled probit model for two industries: electronic and telecommunication equipment manufacturing and computers and office equipment manufacturing. The reason for choosing these two industries is that together they account for 95 % of Chinese high-tech exports and 85 % of innovation investment. According to the results, innovative firms operating in electronic and telecommunication equipment manufacturing are more likely to export compared to non-innovative firms because the coefficients of innovation dummy variables are positive and significant for both foreign firms and domestic firms.
However, the impact of innovation on exporting is different in computer and office equipment manufacturing. Only the marginal effect of the R&D dummy for domestic firms is positive and highly significant. The product innovation dummy even shows a negative sign for foreign firms. This finding may indicate that foreign firms in computer and office
12 Please see Abadie et al. (2004) and Abadie and Imbens (2006) for details about the matching method and Stata module.
27
equipment manufacturing introduce new products to explore the host market rather than foreign markets.
Table 10 Marginal effects of innovation dummy by industry
FIEs Domestic firms [5988\0.492] [5988\0.491] [5363\0.577] [5363\0.573]
Computers and office [1095\0.454] [1095\0.458] [516\0.553] [516\0.544]
Note: All other variables are controlled in the baseline model. Reported values are marginal effects of the innovation dummy, with robust standard errors in parentheses. The number of observations and pseudo R2 values are reported in brackets. ***, **, and * indicate significance at the 1%, 5% and 10% level, respectively.
Table 11 Marginal effects of innovation dummy by province
FIEs Domestic firms
(1) R&D (2) Product innovation
(3) R&D (4) Product innovation Guangdong 0.027 (0.015)* 0.003 (0.022) 0.118 (0.035)*** -0.008 (0.042)
[3292\0.389] [3292\0.388] [1774\0.529] [1774\0.524]
Jiangsu 0.077 (0.030)*** 0.010 (0.061) 0.084 (0.032)*** 0.157 (0.057)***
[1441\0.600] [1441\0.597] [1281\0.650] [1281\0.655]
Shanghai 0.064 (0.034)* -0.022 (0.048) 0.089 (0.050)* 0.032 (0.070) [733\0.502] [733\0.500] [403\0.650] [403\0.641]
Zhejiang -0.022 (0.037) 0.004 (0.036) 0.065 (0.031)** 0.066 (0.032)**
[769\0.534] [769\0.534] [2399\0.573] [2399\0.573]
Beijing 0.099 (0.067) 0.026 (0.070) 0.020 (0.028) 0.073 (0.027)***
[377\0.539] [377\0.536] [879\0.525] [879\0.531]
Tianjin -0.030 (0.053) 0.061 (0.049) 0.061 (0.072) 0.040 (0.077) [321\0.527] [321\0.530] [215\0.536] [215\0.534]
Note: All other variables are controlled in the baseline model. Reported values are marginal effects of the innovation dummy, with robust standard errors in parentheses. The observations and pseudo R2 are reported in brackets. ***, ** and * indicate significance at the 1%, 5% and 10% level, respectively.
28
At the provincial level, we can see that innovation activities play little role in foreign firms’ export participation. Only the marginal effect of R&D for Jiangsu province was positive and highly significant. Among domestic firms, R&D has a positive impact on export participation for those located in Guangdong and Jiangsu Province, whereas product innovation shows a positive impact on firms located in Jiangsu and Beijing. It can be concluded that innovation activities play some role in export decisions for Chinese domestic firms, but the roles are very uneven across industries and provinces. The role of innovation in foreign firms’ export participation remains insignificant or minor.
7. Conclusion
This paper contributes to the debate on the relationship between innovation and high-tech exports in developing countries. Using a large panel dataset from Chinese high-tech firms during the period of 2005-2007, we examine the role of innovation activities in export participation. Following the most recent literature, we use two measures of innovation, that is, R&D and product innovation. We consider the heterogeneous behaviors of domestic-owned and foreign-domestic-owned firms when we analyze the relation between innovation and export participation. In addition, we use an IV approach and non-parametric matching techniques to consider the possible endogeneity of innovation in the export decision. Our results suggest that innovation activities play a minor role in the export success of Chinese high-tech exports.
We also find that foreign firms dominate Chinese high-tech exports but do not rely on innovation activities in China. Innovation efforts have a positive impact on export participation for domestic firms, but their magnitude is very small. It is shown that the impacts of innovation on export participation vary according to the measures of innovation.
Finally, the roles of innovation in high-tech export participation are very uneven across industries and provinces and may correspond to different export patterns.
29
Our findings are broadly consistent with the idea that the success of Chinese high-tech exports is not determined by individual firms’ dedication to innovation activities. Foreign-invested firms account for most of China’s high-tech exports but are unlikely to conduct innovation activities in China. Although we find a positive role of innovation in export participation for domestic firms, these firms have not become the main force of high-tech product exports, indicating that the R&D capability remains weak in domestic firms and that their high-tech products are not competitive on international markets. Therefore, policymakers in China must make some policy adjustments to meet the challenge of achieving a competitive advantage in the next few decades. In fact, a variety of policies have been implemented to promote China’s high-tech industries since the 1990s. China has been very successful in attracting high-tech enterprises and encouraging high-tech exports, but it has not yet improved the innovative capabilities of domestic firms. Recently, China’s central government has adjusted related policies and made efforts to integrate innovation policy with tax policy and trade policy. For example, China increased the tax refund for key scientific and technical equipment, IT products and biological and medical products in 2005.
Meanwhile, 150% of the R&D expenses for the development of new technology, products and techniques can be deducted from a firm’s tax liability as of 2008. The depreciation term can be shortened or sped up for fixed property that depreciates faster due to technological improvements. However, it will take time to for the impacts of these policy adjustments to become apparent, and China still has a long way to go to transform itself into a knowledge-based economy.
30
References
Abadie A., Drukker D., Herr J. L. and Imbens G. W. (2004), 'Implementing Matching Estimators for Average Treatment Effects in Stata', The Stata Journal, 4, 290-311.
Abadie A. and Imbens G. W. (2006), 'Large Sample Properties of Matching Estimators for Average Treatment Effects', Econometrica, 74, 235-67.
Athukorala P. (2009), 'The Rise of China and East Asian Export Performance: Is the Crowding-Out Fear Warranted?', The World Economy, 32, 2, 234-66.
Aw B. Y., Roberts M. J. and Winston T. (2007), 'Export Market Participation, Investments in R&D and Worker Training, and the Evolution of Firm Productivity', The World Economy, 30, 1, 83-104.
Aw B. Y., Roberts M. J. and Xu D. Y. (2009), 'R&D Investment, Exporting, and Productivity Dynamics', NBER Working Paper Series No.14670.
Baum C. F. and Schaffer M. E. (2003), 'Instrumental Variables and GMM: Estimation and Testing', The Stata Journal, 3, 1-31.
Becker S. O. and Egger P. H. (2007), 'Endogenous product versus process innovation and a firm’s propensity to export ', CESifo Working Paper Series No. 1906 .
Bernard A. B. and Jensen J. B. (1999), 'Exceptional exporter performance: cause, effect, or both?', Journal of International Economics, 47, 1, 1-25.
Cai H. and Liu Q. (2009), 'Competition and Corporate Tax Avoidance: Evidence from Chinese Industrial Firms', Economic Journal, 119, 764-95.
Caldera A. (2010), 'Innovation and Exporting: Evidence from Spanish Manufacturing Firms', Review of World Economics, 146, 4, 657-89.
Cameron A. C. and Trivedi P. K. (2009), Microeconometrics Using Stata, (Stata Press).
Caostantini J. A. and Melitz M. (2007), 'The Dynamics of Firm-Level Adjustment to Trade Liberalization', mimeo, Princeton University).
31
Cassiman B. and Martínez-Ros E. (2007), 'Product Innovation and Exports: Evidence from Spanish Manufacturing', IESE working paper, mimeo.
Cole M. A., Elliott R. J. R. and Virakul S. (2010), 'Firm Heterogeneity, Origin of Ownership and Export Participation', The World Economy, 33, 2, 264-91.
Damijan J. P., Kostevc C. and Polanec S. (2010), 'From Innovation to Exporting or Vice Versa? ', The World Economy, 33, 3, 374-98.
Girma S., Görg H. and Hanley A. (2008), 'R&D and Exporting: A Comparision of British and Irish Firms', Review of World Economics, 144, 4, 750-73.
Harris R. and Li Q. C. (2009), 'Exporting, R&D, and Absorptive Capacity in UK Establishments', Oxford Economic Papers, 61, 74-103.
Huang C., Zhang M., Zhao Y. and Varum C. A. (2008), 'Determinants of Exports in China: A Microeconometric Analysis', The European Journal of Development Research, 20, 2, 299-317.
Jefferson G., Hu A. G., Guan X. and Yu X. (2003), 'Ownership, Performance, and Innovation in China's Large- and Medium-Size Industrial Enterprise Sector', China Economic Review, 14, 1, 89-113.
Jefferson G. H., Rawski T. G. and Zhang Y. (2008), 'Productivity Growth and Convergence Across China's Industrial Economy', Journal of Chinese Economic and Business Studies, 6, 2, 121-40.
Lachenmaier S. and Wößmann L. (2006), 'Does Innovation Cause Exports? Evidence from Exgenous Innovation Impulses and Obstacles Using German Micro Data', Oxford Economic Papers, 58, 317-350.
Lall S. (2000), 'The Technological Structure and Performance of Developing Country Manufactured Exports, 1985-98', Oxford Development Studies, 28, 3, 337-69.
32
Lee H.-H. and Stone J. A. (1994), 'Product and Process Innovation in the Product Life Cycles: Estimates for U.S. Manufacturing Industries', Southern Economic Journal, 60, 3, 754-63.
Levinsohn J. and Petrin A. (2003), 'Estimating Production Functions Using Inputs to Control for Unobservables', Review of Economic Studies, 70, 317-42.
Mani S. (2000), 'Exports of High Technology Products from Developing Countries: Is It a Real or Statistical Artifact?', Discussion Paper No. 2000-1, (United Nations University, Institute for New Technologies, Maastricht.
Mayer J., Butkevicius A. and Kadri A. (2002), 'Dynamic Products in World Exports', Discussion Papers No. 159. , (UNCTAD, Geneva).
Melitz M. J. (2003), 'The Impact of Trade on Intra-Industry Reallocation and Aggregate Industry Productivity', Econometrica, 71, 1695-725.
NBSC (2009), China Statistical Abstract 2009, (China Statistics Press, Beijing).
Nguyen A. N., Pham N. Q., Nguyen C. D. and Nguyen N. D. (2008), 'Innovation and Exports in Vietnam's SME Sector', The European Journal of Development Research, 20, 2, 262-80.
Norton E. C., Wang H. and Ai C. (2004), 'Computing Interaction Effects and Standard Errors in Logit and Probit Models', The Stata Journal, 20, 2, 262-80.
OECD (2009), 'Measuring China's Innovation System: national Specificities and International Comparisons', STI Working Paper 2009/1, (Statistical Analysis of Science, Technology and Industry, OECD, Paris.
Roberts M. J. and Tybout J. R. (1997), 'The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs', The American Economic Review, 87, 4, 545-64.
Srholec M. (2007), 'High-Tech Exports from Developing Countries: A Symptom of Technology Spurts or Statistical Illusion?', Review of World Economics, 143, 2, 227-55.
33
Van Beveren I. and Vandenbussche H. (2010), 'Product and Process Innovation and the Decision to Export: Firm-level Evidence for Belgium', Journal of Economic Policy Reform, 13, 1, 3-24.
Wagner J. (2007), 'Exports and Productivity: A Survey of the Evidence from Firm-level Data', The World Economy, 30, 1, 60-82.
Wakelin K. (1998), 'Innovation and Export Behaviour at the Firm Level', Research Policy, 26, 829-41.
World Bank (2008), 'The World Development Indicators 2008', (New York, USA).
World Bank (2009), 'The World Development Indicators 2009', (New York, USA).
Zhao H. and Li H. (1997), 'R&D and Export: An Empirical Analysis of Chinese Manufacturing Firms', The Journal of High Technology Management Research, 8, 1, 89-105.
34
Appendix
Table 1 The classification of Chinese high-tech industries
Code Industries
(I) Manufacture of Medicines
2710 Original drug manufacturing chemicals 2720 Chemical agent production
2730 Traditional Chinese medicine processing 2740 Traditional Chinese prepared medicines 2750 Veterinary medicine manufacturing
2760 Biological, chemical and biological products manufacturing 2770 Sanitation materials and medical articles
(II) Manufacture of Aircraft and Spacecraft 3761 Airplane manufacturing and repairing 3762 Spacecraft manufacturing
3769 Other flying objects manufacturing
(III) Manufacture of Electronic Equipment and Communication Equipment 401 Manufacture of communication equipment
4011 Communications transmission equipment manufacturing 4012 Communication exchange equipment manufacturing 4013 Communications terminal equipment manufacturing
4014 Mobile communications and terminal equipment manufacturing 4019 Other communications equipment manufacturing
402 Manufacture of radar and its fittings
403 Manufacture of broadcasting and TV equipment
4031 Radio and television program production and transmission equipment manufacturing 4032 Radio and television receiving equipment manufacturing
4039 Application of television broadcasting equipment and other equipment 405 Manufacture of electronic appliances
4051 Electronic vacuum device manufacturing 4052 Semiconductor manufacturing discrete devices 4053 Integrated circuit manufacturing
4059 Optoelectronic devices and other electronic device manufacturing 406 Manufacture of electronic components
4061 Electronic components and parts manufacturing 4062 Printed circuit board manufacturing
407 Manufacture of domestic TV sets and radio receivers 4071 Home video equipment manufacturing
4072 Home audio equipment manufacturing 409 Other electronic equipment manufacturing
35
(IV) Manufacture of Computers and Office Equipment 404 Manufacture of computers
4041 Integrated computer manufacturing
4042 Computer network equipment manufacturing 4043 Computer peripheral equipment manufacturing 415 Manufacture of office equipment
4154 Photocopying and offset equipment manufacturing 4155 Calculator and money for equipment manufacturing
(V) Manufacture of Medical Equipment and Meters 368 Manufacture of medical equipment and appliances
3681 Medical diagnosis, care and treatment equipment manufacturing 3682 Dental equipment and apparatus manufacturing
3683 Laboratory and medical equipment and apparatus disinfection system 3684 Medical, surgical and veterinary equipment manufacturing
3685 Treatment and nursing mechanical equipment manufacturing 3686 Artificial organs and plantations (referred) to enter devices 3689 Other medical equipment and device manufacturing 411 Manufacture of general measuring instruments 4111 Industrial automation system device manufacturing 4112 Electrical instrument manufacturing
4113 Mapping, calculation and measurement equipment manufacturing 4114 Experimental analysis of equipment manufacturing
4115 Testing machine manufacturing
4119 Supply with general instruments and other equipment manufacturing 412 Manufacture of special measuring instruments
4121 Environmental monitoring instrumentation for manufacturing 4122 Auto and other counting meters and instruments manufacturing 4123 Navigation, meteorology and marine equipment for manufacturing
4124 Special instruments and meters for agriculture, forestry, animal husbandry and fisheries 4125 Geological exploration and seismic equipment manufacturing
4126 Teaching special equipment manufacturing 4127 Nuclear and nuclear radiation measurement 4128 Electronic measuring equipment manufacturing 4129 Other special equipment manufacturing 4141 Optical equipment manufacturing
4190 Other instrument manufacturing and repair
36
Table 2 Estimated production function coefficients, Levinsohn-Petrin estimation
Industry Capital
(lnK)
Labour (LnL)
CRS test (Wald test)
CRS test (p-value)
Pharmaceuticals 0.103 0.187 388.61 0.000
Aircraft and Spacecraft 0.270 0.128 8.90 0.003
Electronic and Telecommunications Equipment
0.153 0.173 1626.38 0.000
Computers and Office Equipment 0.148 0.246 172.84 0.000
Medical Equipment and Meters 0.117 0.157 626.45 0.000
Note: The dependent variable is logarithm of real value added.
CRS test on constant return to scale
37
Table 3 Definitions of ownership dummy variables
Ownership Dummy Code Ownership Category
FOE Foreign-owned Enterprises 310 Foreign joint ventures 320 Foreign cooperatives
330 Foreign wholly-owned enterprises 340 Foreign shareholding limited companies HMT Hong Kong, Macau, Taiwan-owned Enterprises
210 Overseas joint ventures 220 Overseas cooperatives
230 Overseas wholly-owned enterprises 240 Overseas shareholding limited companies SOE State-owned Enterprises
110 State-owned enterprises
141 State-owned jointly operated enterprises 143 State-collective jointly operated enterprises 151 Wholly state-owned companies
Non-SOE Non-state-owned Enterprises
120 Collective-owned enterprises 130 Shareholding cooperatives
142 Collective jointly operated enterprises 149 Other jointly operated enterprises 159 Other limited liability companies 160 Shareholding limited companies 171 Private wholly-owned enterprises 172 Private cooperative enterprises 173 Private limited liability companies 174 Private shareholding companies 190 Other enterprises
Note: FOEs and HMTs are classified as foreign-invested enterprises (FIEs), while SOEs and Non-SOEs are considered as domestic firms in the analysis.