Yaming Chang from Penn State will present “Innovation Efficiency Gains from Exporting: A Growth Perspective”

Abstract: Does exporting raise a firm's innovation efficiency—by how much—and what does that imply for long‑run growth? To answer these questions, I develop and estimate an endogenous growth model that embeds two opposing forces: exposure to foreign buyers and rivals provides knowledge that makes innovation more effective—the exporting–innovation efficiency (EIE) channel—whereas broader product scope dilutes managerial attention and lowers marginal returns. The model predicts that innovation efficiency rises with export intensity and falls with product scope and firm size. Using firm-level data on Chinese manufacturers, I document patterns consistent with these predictions and use this variation to estimate the model. The estimates indicate that exporting a product raises its innovation return by about 9 percent. The firm-level gains are modest, but the aggregate consequences are economically meaningful: eliminating the EIE channel reduces the long-run growth rate by about 1.3 percentage points and leads evaluations that omit it to understate the gains from trade. Trade liberalization, therefore, raises growth while reallocating market share toward the most productive firms, increasing concentration. The findings show that trade policy shapes not only the productivity of innovation but also market structure.