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How do firms adapt trade liberalization through diverse innovation strategies?

Author

Listed:
  • Wentao, Guo
  • Hongyu, Nian
  • Zhiqiang, Zhang

Abstract

This paper studies how firms navigate trade uncertainties and sustain their competitiveness in response to trade liberalization. Upon taking different innovation strategies, we find that among the firms that develop both green and productive technology after trade liberalization, there is a significant increase in export value and price, accompanied by a reduction in Chemical Oxygen Demand (COD) and wastewater intensity. While among the firms that are without green technology, the development of productive technology after trade liberalization can significantly increase firms’ export value, but the effects on firms’ export product price, COD, and wastewater intensity are statistically insignificant. Moreover, we observe that a very small proportion of firms choose to shrink the investment into productive technologies after trade liberalization, and the within-firm effects show that neither the export competitiveness nor the environmental performance of those firms are improved. The overall results indicate that green technology is crucial for assisting firms to mitigate trade risks associated with green standards, thereby maintaining their competitiveness in the international market.

Suggested Citation

  • Wentao, Guo & Hongyu, Nian & Zhiqiang, Zhang, 2025. "How do firms adapt trade liberalization through diverse innovation strategies?," Economic Analysis and Policy, Elsevier, vol. 86(C), pages 304-320.
    • Handle: RePEc:eee:ecanpo:v:86:y:2025:i:c:p:304-320
    DOI: 10.1016/j.eap.2025.03.003
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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