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Digital trade barriers and firm digitalisation: The role of innovation quality

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  • Wu, Yan
  • Yu, Huan

Abstract

This paper examines how digital trade barriers affect corporate digitalisation using the OECD Digital Trade Restrictiveness Index combined with Chinese firm-level data. The results show that digital trade barriers significantly hinder firms’ digital transformation, and this finding remains robust across alternative specifications, including instrumental variable estimation. Innovation quality plays a mitigating role, weakening the adverse impact of trade barriers and acting as a key moderating channel. The effect is heterogeneous: it is stronger among firms located in coastal regions, and among firms operating in more market-oriented environments. These results highlight the uneven consequences of digital trade restrictions across firms and contexts. Overall, the evidence underscores the importance of strengthening innovation quality and knowledge creation as a means of sustaining digital transformation in the presence of rising digital protectionism.

Suggested Citation

  • Wu, Yan & Yu, Huan, 2026. "Digital trade barriers and firm digitalisation: The role of innovation quality," Economic Analysis and Policy, Elsevier, vol. 91(C), pages 1672-1684.
    • Handle: RePEc:eee:ecanpo:v:91:y:2026:i:c:p:1672-1684
    DOI: 10.1016/j.eap.2026.05.015
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