Exports and Innovation under Trade Conflicts : A Dynamic and Heterogeneous Perspective

We build a dynamic and heterogeneous firm-level model that embodies joint decisions to export and innovate and allows both decisions to affect the firm’s production growth. We calibrate the model based on Chinese manufacturing firm data from 2005 to 2007 and find that: (1) the industry dynamics are driven by both self-selection and learning-by-exporting mechanisms, in which firms’ exports and innovation work in tandem, (2) an increasing tariff causes much a bigger negative impact than an increasing entry cost, and (3) the negative impacts of a trade conflict heavily depend on its severity as well as timing