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

• Published in: China economic review 2018-08, Vol.50, p.42-58
• Main Authors: Dai, Xiaoyong, Sun, Zao, Liu, Hang
• Format: Article
• Language: English
• Subjects: Export; Innovation; Markup; Multiple treatments; Productivity
• ISSN: 1043-951X; 1873-7781
• DOI: 10.1016/j.chieco.2018.03.007

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. •We disentangle the effect of export and innovation on firm markup and productivity.•We account for firms' endogenous export and innovation decisions.•Starting to export alone negatively affects firm markup and productivity.•Starting to innovate alone has a positive impact on firm markup and productivity.•Export and innovation have some complementarity in improving firms' performance.