Do Exporting Firms in the Peopleâ€™s Republic of China Innovate?
With international trade spluttering amidst the Great Recession, there is renewed interest in the factors driving firm-level export performance in Asiaâ€™s super exporterâ€”The Peopleâ€™s Republic of China (PRC). While early studies suggested that innovation was important, there has been little research on opening up the black box of technology at firm-level in the PRC. This paper undertakes econometric analysis of innovation, learning, and exporting in automobiles and electronics firms in the PRC using a large-scale dataset to identify the most appropriate innovation proxy. Drawing on recent literature on innovation and learning in developing countries, it tests two alternative proxies : (i) a technology index (TI) to capture a variety of minor activities involved in using imported technologies efficiently; and (ii) the research and development (R&D)-to-sales ratio, which represents formal technological efforts to create new products and processes, often at world frontiers. A higher TI (representing minor technological activities) increases the probability of exporting in both industries, while the R&D-to-sales ratio was not significant. Foreign ownership, technical manpower, and the characteristics of the general manager/chief executive officer also matter. The findings suggest that the PRCâ€™s remarkable success in the export of automobiles and electronics since initiating an open-door foreign direct investment (FDI) policy in 1978 is linked to technology transfer from multinationals; systematic investments in and upgrading of minor technological activities (like search, engineering, quality management, and design); and human capital. As the PRCâ€™s per capita income rises over time, however, formal R&D activities are likely to become more important to sustain competitiveness and technological upgrading in automobiles and electronics.
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