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| Opening of Foreign Investment in Productive Services and Innovative Behavior of Manufacturing Firms |
| ZHU Zhujun, HUANG Xianhai, CHEN Hangyu
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Modern Business Research Center & School of Economics, Zhejiang Gongshang University;
School of Economics, Zhejiang University;
Research Center for Regional Coordinated Development & China Open Economy, Zhejiang University |
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Abstract The development of new quality productivity requires promoting the deep integration of productive services with manufacturing. A report of the 20th National Congress of the Communist Party of China proposes to increase the opening of the modern service industry and promote its deep integration with advanced manufacturing. Overall, the proportion of knowledge-intensive business services (KIBS) is increasing, and the proportion of productive services represented by KIBS will continue to increase steadily. Currently, a conspicuous shift from real to virtual productive services is ongoing, and the positive effect of productive services on manufacturing is decreasing. The level of coordinated development between productive services and manufacturing is low. Promoting the deep integration of productive services with manufacturing will enhance China's high-quality development. Whether upstream productive services can promote innovative behavior in downstream manufacturing serves as the micro basis for testing this macro proposition. Improving the levels of integration and development between productive services and manufacturing and cultivating new forces to drive growth through service innovation are currently hot topics in academic and policy circles.
This paper theoretically extends Foster et al.'s (2008) benchmark model by introducing innovation behavior and the upstream opening of foreign investment in productive services. It reveals the mechanism of innovation behavior in downstream manufacturing from the supply side and demand side and under general equilibrium conditions. According to a comparative static analysis, the impact of opening foreign investment in productive services on manufacturing innovation yields a U-shaped curve. Specifically, the opening of knowledge-intensive services affects the innovation behavior of downstream manufacturing firms through a cost-saving effect, a preference complementarity effect, and a competition intensification effect, while the opening of transportation services affects the innovation behavior of downstream manufacturing firms through a cost-saving effect and a competition intensification effect.
This paper yields the following findings. (1) Overall, the opening of foreign investment in productive services significantly improves the quantity, quality, and efficiency of patent innovation in Chinese manufacturing firms. (2) Mechanistically, the opening of foreign investment in productive services has a positive cost-saving effect and preference complementarity effect and a negative competition intensification effect on downstream manufacturing innovation behavior. The total effect depends on the sum of the above effects. The opening of foreign investment in productive services yields a U-shaped relationship with the degree of manufacturing innovation, and a threshold value of openness with a positive innovation effect is revealed. (3) Several types of policies are conducive to expanding positive innovation effects, namely accelerating the opening of knowledge-intensive service industries such as communication, commerce, and technology to foreign investment; improving the technological level and management efficiency of manufacturing firms; optimizing the degree of regional marketization; and promoting the synergy and complementarity of measures outside and within the border. This paper may serve as an important reference in terms of expanding the opening of foreign investment in productive services, promoting Chinese manufacturing firms' innovative behavior, and exploring institutional opening paths for the development of new quality productivity.
The potential marginal contributions are as follows. (1) Theoretically, this paper extensively incorporates analysis of the complementary effects of demand-side preferences and finds that the complementary effects of productive services and manufacturing enhance the degree of firms' product appeal. Simultaneously, this paper draws on the general equilibrium solution to analyze the overall impact of the opening of foreign investment in productive services on changes to cut-off costs in manufacturing. This paper incorporates a cost-saving effect, preference complementarity effect, and competition intensification effect into the unified theoretical framework to analyze the mechanism by which the opening of foreign investment in productive services affects manufacturing innovation. (2) Empirically, this paper extends the methods used to identify and portray firms' innovation behavior and the opening of foreign investment in productive services. Due to the lack of firm-level data on the intermediate inputs of services, the literature uses domestic input-output tables to measure the degree of industry-level service openness based on the assumption of homogeneous proportions. However, this approach cannot effectively reflect the impact of a specific manufacturing on the upstream domestic and foreign components of productive service calls. This paper distinguishes between the proportions of domestic and foreign intermediate input into productive services, using the WIOD's non-competitive input-output tables to accurately measure the extent of the impact of foreign investment openness policy shocks in productive services at the industry level. Using patents as the core indicator of innovation output and information from the Annual Survey of Chinese Industrial Firms and Innovation Survey Database, this paper provides an effective measure of patent quality and innovation efficiency. (3) In terms of policy implications, this paper provides micro-foundational and theoretical support for realizing the deep integration of advanced manufacturing with modern services and demonstrates the importance of promoting the real economy by moderately pre-opening productive services. This paper explores feasible measures for promoting innovative behavior in Chinese manufacturing by opening foreign investment in upstream productive services and provides a path for optimizing innovation-driven development strategies with the systematic opening of the productive service industry and other fields. It thus provides optimized paths toward the development of new quality productivity.
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Received: 03 January 2023
Published: 17 July 2024
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