Innovation and Export Performance of Emerging Market Enterprises: The Roles of State and Foreign Ownership in China

This article examines the role of ownership for the relationship between innovation and exports. Analyzing a large firm-level data set on Chinese manufacturing firms during 2000–2007, we find that state ownership has a positive moderating effect on the innovation–export relationship. We ascribe this effect to state-owned firms’ privileged access to complementary resources and networks that strengthen their ability to use innovation to generate exports. In contrast to many earlier studies, we also find that foreign ownership has a negative moderating effect. One likely reason is that indicators of local innovation do not reflect the flows of knowledge between foreign-owned firms and their parent companies. This finding highlights the fact that innovation and production may be geographically separated within multinational enterprises. A policy implication of the analysis is that public support to innovation is likely to have stronger effects on exports when it targets firms that carry out most of their activities in domestic market.