The effect of domestic and foreign trade coordination on technological innovation： complements or substitutes？

Based on the theory of technology spillover in international trade, this paper discusses the technological innovation effect of trade by taking the influence of domestic trade into account. Under the constraint of the production possibility frontier, there is either complementarity or substitutability between domestic and foreign trade. It must be decided whether resources should be concentrated in one of the sectors （trade specialization） or instead allocated equally （trade equalization） between the two sectors. This paper firstly discusses how domestic trade and foreign trade work together to influence technological innovation, and how trade equalization and specialization affect different types of innovation. Using a provincial-level panel dataset from 2007 to 2015 in China, this paper constructs the indicators of domestic and foreign trade linkage and examines the impact of trade on innovation. The findings show that trade equalization mainly promotes incremental innovation, while trade specialization improves radical innovation. Thus, in the area of incremental innovation, attention should be paid to the equalized development of domestic and foreign trade, while in areas pursuing radical innovation, emphasis should be put on the specialization of the trade sector, avoiding equal allocation of resources to the two sectors.

Are China's Trade Policies Effective?

I. IntroductionSince economic reform and an opening-up in 1978, the Chinese government has decentralized its state-owned enterprises (SOEs) system in the centrally planned economy. The separation of government administration and enterprise management is moving China toward a market-oriented economy, forcing Chinese enterprises to become more competitive and more efficient. Market forces of supply and demand are intended to govern firms’ industrial production, which is no longer subject to government planning and control.

Has Global Division of Labor Increased Markup of Chinese Enterprises?

The paper calculates the number of production stages for measurement of production segmentation,and discusses and depicts the microscopic impacts and effects of production segmentation of labor division of the global value chain on enterprise markup.The DLW method is used to calculate the markup of Chinese enterprises,the fi xed-effect model is used to analyze the impact of labor division of the global value chain on enterprise markup,and an instrumental variable method is constructed to relieve endogeneity.The research findings show that enterprises have significantly increased their markup by choosing global production segmentation,international production segmentation and domestic production segmentation.Global production segmentation can significantly increase the markup of low-productivity enterprises,hi-tech enterprises and private enterprises.Particularly,low-productivity enterprises choose international production segmentation and hi-tech enterprises choose domestic production segmentation.Production segmentation can offset to a certain extent low markup of export enterprises and domestic-oriented enterprises caused by the“competition effect”.In addition,enterprises’“technological progress effect”and“trade cost effect”are two possible channels by which production segmentation facilitates the increase of markup.The paper enriches and expands the literature about the impacts of labor division of the global value chain on enterprise markup,the robustness is analyzed from the perspectives of enterprise heterogeneity,industrial&technical heterogeneity and structure,and the impact mechanism is validated through the intermediate effect model.Our important findings are of important implications for solving the“low markup trap”of Chinese enterprises and enhancing labor division of the global value chain of enterprises.