Research Highlight

Sun, S. (2023), "Trade Liberalization, Export and Product Innovation".

Presented at:

• The 17th Australasian Trade Workshop, 2024; 

• The 33rd Annual Conference of Chinese Economics Society Australia, 2024;

• The Econometric Society Australasia Meeting, Monash University, Melbourne, Australia, 4-6 Dec, 2024.

• The Online Australasian Seminar in International Economics, 24 July, 2024.

Highlights: 

1. We model firms’ entry, exit, export and innovation decisions in a multi-stage framework, and establish a four-step estimation algorithm that addresses both the endogenous sample selection and attrition issues;

2. Empirically, we bring the model to a sample of air-conditioner manufacturing firms in China from 2000 to 2007 and examine the shock of China’s WTO accession;

3. China’s WTO accession reduces the iceberg trade cost, which promotes export and subsequently product innovation via one static and two dynamic channels:

   1. It incentivizes firms to innovate as the marginal benefit of innovation for exporting firms is higher than that for non-exporting firms;

   2. Dynamically, first, as a firm starts to innovate, it predicts to have a higher probability of moving to a better productivity state in next period;

   3. Second, it also saves the entry cost of innovation in the future.