Trade Liberalization, Export and Product Innovation

[2603.23825] Trade Liberalization and Product Innovation: The Dynamic Role of Exporting Skip to main content Search Submit Donate Log in Economics > General Economics arXiv:2603.23825 (econ) [Submitted on 25 Mar 2026 ( v1 ), last revised 8 Oct 2026 (this version, v3)] Title: Trade Liberalization and Product Innovation: The Dynamic Role of Exporting Authors: Sizhong Sun View PDF Abstract: How does trade liberalization affect firms' incentives to innovate? We answer this question using China's WTO accession and a dynamic model of firms' joint export and product-innovation decisions. We find that trade liberalization reduced iceberg trade costs by approximately 13.5 percent in the air-conditioner manufacturing industry, which substantially increased the probability of export and product innovation. Moreover, the response is driven primarily by dynamic rather than static incentives. Two dynamic mechanisms are central: exporting and innovating lead firms to predict more favorable transitions to better productivity states and reduce future entry costs, thereby raising the returns to subsequent innovation. Counterfactual decompositions show that these mechanisms account for the majority of the innovation response. For firms in an intermediate productivity state, the direct static effect (without entry-cost saving and state transition) accounts for only 9.2 percent of the total effect of WTO accession. Shutting down state transition leads to 62.4 percent of the total effect, while shutting down entry-cost saving results in 28.5 percent. The results demonstrate that the innovation effects of trade liberalization are substantially amplified by firms' endogenous dynamic responses, highlighting the importance of accounting for state transitions and forward-looking decisions when evaluating the gains from trade. Subjects: General Economics (econ.GN) Cite as: arXiv:2603.23825 [econ.GN] (or arXiv:2603.23825v3 [econ.GN] for this version) https://doi.org/10.48550/arXiv.2603.23825 Focus to learn more arXiv-issued DOI via DataCite Submission history From: Sizhong Sun [ view email ] [v1] Wed, 25 Mar 2026 01:18:47 UTC (725 KB) [v2] Tue, 25 Aug 2026 02:38:33 UTC (1,074 KB) [v3] Thu, 8 Oct 2026 10:37:02 UTC (1,852 KB) Full-text links: Access Paper: View PDF view license Current browse context: econ.GN < prev | next > new | recent | 2026-03 Change to browse by: econ q-fin q-fin.EC References & Citations NASA ADS Google Scholar Semantic Scholar export BibTeX citation Bookmark Bibliographic Tools Bibliographic and Citation Tools Bibliographic Explorer Toggle Bibliographic Explorer ( What is the Explorer? ) Connected Papers Toggle Connected Papers ( What is Connected Papers? ) Litmaps Toggle Litmaps ( What is Litmaps? ) scite.ai Toggle scite Smart Citations ( What are Smart Citations? ) Code, Data, Media Code, Data and Media Associated with this Article alphaXiv Toggle alphaXiv ( What is alphaXiv? ) Links to Code Toggle CatalyzeX Code Finder for Papers ( What is CatalyzeX? ) DagsHub Toggle DagsHub ( What is DagsHub? ) GotitPub Toggle Gotit.pub ( What is GotitPub? ) Huggingface Toggle Hugging Face ( What is Huggingface? ) ScienceCast Toggle ScienceCast ( What is ScienceCast? ) Demos Demos Replicate Toggle Replicate ( What is Replicate? ) Spaces Toggle Hugging Face Spaces ( What is Spaces? ) Spaces Toggle TXYZ.AI ( What is TXYZ.AI? ) Related Papers Recommenders and Search Tools Link to Influence Flower Influence Flower ( What are Influence Flowers? ) Core recommender toggle CORE Recommender ( What is CORE? ) Author Venue Institution Topic About arXivLabs arXivLabs: experimental projects with community collaborators arXivLabs is a framework that allows collaborators to develop and share new arXiv features directly on our website. Both individuals and organizations that work with arXivLabs have embraced and accepted our values of openness, community, excellence, and user data privacy. arXiv is committed to these values and only works with partners that adhere to them. Have an idea for a project that will add value for arXiv's community? Learn more about arXivLabs . Which authors of this paper are endorsers? | Disable MathJax ( What is MathJax? ) We gratefully acknowledge support from our major funders , member institutions , and all contributors. About · Help · Contact · Subscribe · Copyright · Privacy · Accessibility · Operational Status (opens in new tab) Major funding support from

Related documents

• Trade Liberalization, Export and Product Innovation#670533
• Desarrollo industrial y exportaciones industriales#166931
• Desarrollo industrial y exportaciones industriales#164540
• International trade and trade policy#11077
• Evolving patterns of international trade#254701