China's Innovation Mode Choice:Independent Innovation or Technology Introduction?
Innovation serves as the core of economic development,which shapes micro-firm-level competitiveness and macro-country-level comparative advantages.Although a large body of literature examines the impact of innovation on firm perfor-mance through TFP improvement,the impact of innovation mode choices on firm performance has rarely been investigated.In this paper,we attempt to first analyze the impact of innovation mode choices on firm performance,and then disentangle the demand and supply channels through which different innovation modes affect firm performance.Supply channel refers to the facilitating effect of innovation on firm performance by improving firm TFP;demand channel refers to the signaling effect of innovation,which increases firms'demand in a market and hence improves firm performance.The clarification of the hetero-geneous channels through which different innovation modes affect firms'export profits is not only the focus of research inter-est,but also holds practical significance.We start this paper by establishing a series of stylized facts to highlight the signaling effect(demand channel)of in-troducing foreign technology;and the productivity improvement channel(supply channel)of independent innovation.In particular,we first present stylized facts to show the correlation between firms'innovation mode choices and export per-formance,and find a positive correlation between firm exports and introducing foreign technology.We exclude the possi-bility that exports encourage firms'foreign technology introduction by elucidating phenomena such as the negative corre-lation between firms'foreign technology introduction and the duration of their engagement in export activities,as well as highlighting the greater motivation of domestic enterprises vis-à-vis foreign-invested counterparts to introduce foreign technology.Second,we highlight the signaling effect of introducing foreign technology through showing an additional ex-port enhancement effect of introducing foreign technology after controlling for the TFP improvement effect.Third,we un-cover the heterogeneous TFP improvement effects of introducing foreign technology and independent innovation.The re-sults show that independent innovation generates a more pronounced TFP improvement effect than introducing foreign technology does.In addition,independent innovation may fuel industrial/national standard setting.Last,we uncover the differential costs associated with different innovation modes by showing the difference of absorbing and technology up-grading costs.All these stylized facts together imply that different innovation modes influence firm performance through differential channels and the magnitude manifests significant heterogeneity.When export revenues account for a larger share in firms'total revenues,the firms tend to introduce foreign technology;otherwise,they will be more likely to en-gage in independent innovation.Based on these stylized facts,we develop a structural model,in which firms sequentially determine their innovation modes,R&D investment,and optimal price/quantity,and make export decisions.The structural model is numerically calibrated by matching certain moment conditions from the data,and the key parameters,e.g.,the signaling effect and TFP improvement effect,have been identified.We further conduct counterfactual analyses.For example,we change the international and domes-tic trade costs to simulate the relative importance of international and domestic markets,and examine the optimal innovation mode choice under these counterfactual situations.The results show that when the international market becomes tougher,inde-pendent innovation is a more appropriate choice for firms.In addition,if all firms adopt independent innovation,the overall in-novation rate is likely to increase,offsetting the negative impact caused by a reduction in the foreign market size.Our analysis provides insightful support for independent innovation:the domestic market has gained increased signifi-cance in response to the implementation of the"dual-circulation system,"while the international market has become more un-predictable.As such,independent innovation can improve firm TFP effectively,and alleviate the"containment"issue faced by key technologies.
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