Export intensity, domestic competition, and product innovation in an emerging economy

Recent studies have found contradictory evidence about the relationship between a firm's exporting intensity and its success in product innovation. Data on 6,197 firms in the Chinese auto industry were analysed to demonstrate that the relationship is actually inverted-U shaped, at least in that specific context. Exporters in emerging economies can be technology and market leaders in their domestic markets, but internationally they tend to be technology and market laggards. When the export intensity is low firms that also export can benefit from knowledge gained in overseas markets, improving their product innovation. When the export intensity is very high, focused exporters tend to focus on the overseas markets where they may not have competitive advantages in product innovation, developing fewer product innovations. Furthermore, the paper found that the inverted-U shaped relationship between export intensity and product innovation is strengthened by more intense competition in the home market.