The U-shaped impact of export quality on firms' innovation output: Empirical evidence from China

Ensuring product quality plays a pivotal role in the successful execution of new product development and serves as a cornerstone for fostering innovation within enterprises. In this study, we investigate the impact of export quality at the firm level on innovation outcomes, utilizing data from Chinese publicly listed companies and customs data spanning the period from 2010 to 2015. Our analysis uncovers a notable U-shaped relationship between export quality and innovation output in Chinese manufacturing enterprises, particularly with respect to invention patents and utility model patents. Subsequent exploration of heterogeneity reveals that this U-shaped relationship is consistent for non-state-owned enterprises, firms operating in high-technology sectors, young firms, firms exporting to high-income countries, firms situated in the eastern region, and firms engaged in processing trade. Additionally, we find a positively significant effect of Chinese manufacturing export quality on the innovation output of firms exclusively involved in general trade. This paper's key contribution lies in identifying the U-shaped influence of export quality on firms' innovation output and its applicability. The findings suggest that Chinese manufacturing enterprises need to improve the quality of their export products on a long-term and sustained basis. A series of quality standards for the dynamic development of different industries should be formulated, and actively safeguard the innovation needs of these enterprises, thereby enhancing the value chain position of Chinese manufacturing enterprises.