Research On The Impact Of Import Policy Uncertainty On Innovation In Chinese Firms

With the withdrawal of the UK from the European Union,the withdrawal of the US from Trans-Pacific Partnership,the renegotiation of NAFTA,and the trade disputes between China and the United States,the international strategic situation has experienced obvious turbulence,especially the instability and uncertainty in the aspect of international trade.In addition,the global outbreak of COVID-19 in 2020 will undoubtedly add insult to injury in terms of maintaining the stability of international relations and international trade.As the main target country of trade protectionism measures,the trade uncertainty caused by the severe external environment will have a profound impact on all aspects of the Chinese economy.At the same time,China’s economy has already entered the stage of high-quality development,the Chinese government attaches great importance to play the strategic role of innovation in supporting development.The continuous promotion of building an innovative country has made more and more Chinese firms join the innovation track,and improving the innovation capability of firms has become an inevitable requirement for reshaping China’s new advantages in international cooperation and competition and building a world power in science and technology.How the uncertainty in trade policies,especially import policy uncertainty,will affect innovation activities of Chinese firm.This will be one of the key questions to be answered as China explores a new economic development model,but there is little literature that comprehensively and systematically examines the effects of import trade policy uncertainty on Chinese firms’ innovation.Therefore,it is of great theoretical and practical importance to understand how uncertainty in import trade policies affects the innovation behavior of Chinese firms.Due to the limited availability of recent micro data,this paper takes the historical event of China’s accession to the World Trade Organization as the basis of research,and uses matched data from 1998 to 2007 to deal with the endogeneity problem arising from self-selection through a Difference-in-Difference method.It should be noted that due to the numerous major international events that occurred in 2008,such as the global financial crisis,the international oil price crash,the Wenchuan earthquake,the U.S.presidential election,and other shocks that came one after another,it is difficult to conduct better control and identification,therefore,this study ends the sample period to 2007 for the empirical study.However,in the subsequent robustness check,the study period will be extended to 2013 to verify the long-term effects of reduced uncertainty in import trade policies at different levels on firm innovation.This paper focuses on the following four questions with a research paradigm combining theoretical analysis and empirical testing:(1)What is import trade policy uncertainty?(2)How to construct an indicator system of import trade policy uncertainty?(3)What is the theoretical basis of import trade policy uncertainty on innovation behavior?(4)How does import trade policy uncertainty affect innovation behavior?First,in view of the question of "what is import trade policy uncertainty",this paper introduces the policy background and development of China’s import trade policy uncertainty based on a review of domestic and international literature,and clarifies the specific meaning of China’s import trade policy uncertainty by means of examples.Secondly,in view of the question of "how to construct an indicator system for import trade policy uncertainty",this paper summarizes the measurement methods of trade policy uncertainty indicators and provides a comprehensive comparison and understanding of the existing calculation methods.Further,this paper innovatively constructs and measures the indicator system of import trade policy uncertainty at product level,industry level,upstream industry level and regional level,and analyzes the characteristics and evolution trend of import trade policy uncertainty faced by each level on this basis.In addition,this paper also graphically observes the changes in the innovation output of firms with different import trade policy uncertainties before and after China’s accession to the WTO to confirm the intrinsic link between them.Thirdly,in view of the question of "what is the theoretical basis of import trade policy uncertainty on innovation behavior",this paper summarizes and composes the basic theories related to the influence of import trade policy uncertainty on innovation.Then,on the basis of heterogeneous firm trade model,this paper introduces import trade policy uncertainty into the model and further deduces the theoretical logic and inner mechanism of import trade policy uncertainty affecting innovation behavior by establishing a mathematical analysis model.Finally,in view of the core question of "how import trade policy uncertainty affects innovation behavior",this paper conducts several sets of empirical analyses to investigate the effects of import trade policy uncertainty,intermediate input import trade policy uncertainty,regional import trade policy uncertainty on firms’ innovation,and analyzes the firm heterogeneity,spatial heterogeneity and patent heterogeneity in order to find empirical evidence that import trade policy uncertainty affects innovation behavior.Through theoretical and empirical studies,the main conclusions of this paper are as follows.The trend analysis finds that China actively promoted the WTO accession process during 1992-1997 and maintained a large decline in average import tariffs.From 1998 to 2001,China’s import tariffs remained stable and were further reduced after its formal entry into the WTO.In this process,the import trade policy uncertainty at final,intermediate and city levels appeared to be reduced to different degrees,and this uncertainty almost disappeared after China’s accession to the WTO.At the same time,the distribution of import trade policy uncertainty indices at different levels has large spatial and temporal differences.In terms of innovation,the number of Chinese patent outputs is heterogeneous across patent types and industries.In general,the number of Chinese firms’ patents continued to rise in general from 1998 to 2007,with a steeper upward trend in the total number of patent applications after China’s accession to the WTO.The theoretical analysis finds that firms make the decision whether to invest in R&D based on the fact that they will choose to invest in innovative R&D immediately if they expect future profits to be higher than the cost of their R&D investment,otherwise they will choose to postpone their R&D investment.Without considering other circumstances,firms’ profits will be affected only by import tariffs.In contrast,reduced uncertainty in import trade policies can lead firms to expect future profits lower than the cost of their R&D investments,thus causing them to postpone their R&D innovations.Moreover,there is a mediating effect of import trade policy uncertainty on firm innovation.This paper summarizes the existing literature and forms several transmission paths,such as import competition effect,quality improvement of imported intermediate goods,import dependence and the current situation of urban development,and conducts a corresponding mechanism test in the follow-up.The empirical analysis finds that the decreases of industry-level import trade policy uncertainty,upstream industry-level intermediate input import trade policy uncertainty,and regional-level import trade policy uncertainty will significantly reduce the innovation patent output of Chinese manufacturing firms to different degrees.The above findings remain robust after considering a series of identification hypotheses and robustness tests.In addition,there is significant heterogeneity in the impact of import trade policy uncertainty on firms’ innovation,as evidenced by the fact that declining import trade policy uncertainty is more likely to suppress innovation output of high-productivity firms,non-state-owned firms,firms in the eastern region,and invention-type patents and utility model-type patents.The contributions of this study are in three main areas.Firstly,the research perspective of this thesis is novel and unique.In contrast to the existing studies on trade policy uncertainty that focus only on the export perspective,this paper comprehensively and systematically studies China’s innovation development from the perspective of import trade policy uncertainty,realizing the organic expansion and integration of the research on trade policy uncertainty and innovation development.At the same time,this study makes use of the exogenous impact of China’s WTO accession,and innovatively assesses the causal effects and impact mechanisms of changes in import policy uncertainty on China’s innovation development level at the firm and regional levels from multiple perspectives,including firms,industries,and regions,which helps deepen the understanding of China’s import trade policy uncertainty and enrich the research perspective of economic effects related to import trade policy uncertainty.Secondly,the research method of this thesis is cutting-edge and comprehensive.On the one hand,this paper scientifically measures import trade policy uncertainty indicators at the product,industry,and city levels,and uses statistical descriptive analysis of data to accurately present and illustrate the trends and distribution characteristics of relevant indicator variables and the common trend test between the experimental and control groups in an all-round way,bridging the gap in the understanding of existing research on import policy uncertainty.On the other hand,in order to accurately identify the impact of import policy uncertainty changes on innovation output,this thesis explores the theoretical framework of the impact of import trade policy uncertainty changes on China’s innovation development level from multiple perspectives,and constructs a derivative theoretical model using the exogenous shock of China’s WTO accession.It also integrates a parsimonious estimation method and conducts an empirical study using a double difference estimation method to analyze in depth the impact effects and mechanism paths of import trade policy uncertainty affecting China’s innovation development level from different dimensions and perspectives.In addition,this paper also conducts a series of endogeneity analysis,identification hypothesis test,robustness test,mechanism analysis and heterogeneity analysis,etc.Thirdly,the findings of this study have promising policy application.This study obtains a series of findings on import policy uncertainty,intermediate input import policy uncertainty,regional import policy uncertainty and firms’ innovation output,also extends and expands the discussion of these findings in terms of firm,industry,and regional heterogeneity.This series of findings is rarely found in the existing literature.Therefore,in the face of the clear requirement that China insists on the core position of innovation in the overall situation of modernization and the objective reality that global trade policy uncertainty continues to run at a high level,this study,through systematic analysis of past data,can provide forward-looking and strategic countermeasures from the firm,industry and regional levels for China to effectively promote firm innovation and strengthen regional innovation development,and provide a reference for China to implement a more targeted and differentiated innovation incentive policy.