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Quality innovation, cost innovation, exporting, and firm productivity evolution: Evidence from the Chinese electronics industry

Author

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  • Liu, Mengxiao
  • Wang, Luhang
  • Yi, Yimin

Abstract

This study analyzes the role of innovation in firm productivity evolution, distinguishing between quality-improving and cost-reducing innovations. Using a dynamic structural model estimated with data from the Chinese electronics industry, we find that quality innovation, while more costly, boosts domestic revenue, whereas cost innovation better supports export performance. Our counterfactual analysis shows that firms are most responsive to fixed-cost subsidies for cost innovation and exporting. However, when a fixed-budget constraint is introduced, the effectiveness of the quality innovation subsidy catches up with the other two. We also find that small and inexperienced firms tend to respond by exporting, while large and experienced firms are more likely to respond by innovating.

Suggested Citation

  • Liu, Mengxiao & Wang, Luhang & Yi, Yimin, 2025. "Quality innovation, cost innovation, exporting, and firm productivity evolution: Evidence from the Chinese electronics industry," Journal of Economic Behavior & Organization, Elsevier, vol. 239(C).
    • Handle: RePEc:eee:jeborg:v:239:y:2025:i:c:s0167268125003518
    DOI: 10.1016/j.jebo.2025.107232
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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics

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