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| Innovation in Supply Chain Networks and the Enhancement of Firms' Total Factor Productivity: The Perspective of Supplier Innovation |
| ZHU Guang, ZHANG Pengyang
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| School of Economics, Capital University of Economics and Business; School of Economics and Management, Beijing University of Technology |
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Abstract Enhancing total factor productivity (TFP) is not only a key lever for fostering new quality productive forces but also an important foundation for promoting high-quality economic development. Against the backdrop of the deepening global division of labor within industrial and supply chains, competition among firms has gradually evolved from individual game theory to comprehensive competition within supply chain networks. How to effectively integrate innovative resources within supply chains to enhance firms' TFP has thus become a key issue in promoting high-quality economic development. Existing studies predominantly focus on the effects of firms' own innovation on TFP, while overlooking innovation spillovers embedded in supply chain networks, particularly the role of upstream supplier innovation. To address this gap, this paper adopts the perspective of supplier innovation and systematically examines the mechanisms and channels through which innovation within supply chain networks affects firms' TFP.
Based on multi-source matched data from the CSMAR database, firm-level patent data, and the Chinese Research Data Services Platform (CNRDS), this study constructs firm-upstream supplier paired samples and conducts an empirical analysis of Chinese listed manufacturing firms from 2004 to 2022 using fixed effects models, instrumental variable approaches, and propensity score matching (PSM) methods. The main findings are as follows. First, supplier innovation significantly enhances firms' TFP, and this result remains robust after addressing potential endogeneity concerns and conducting a series of robustness checks. Second, after separating firms' own innovation from supplier innovation, we find that when both suppliers and firms innovate simultaneously, the promotion of firms' TFP is the strongest; even in cases where firms' own innovation is insufficient, reliance on supplier innovation can still significantly improve firms' TFP. Third, mechanism analyses indicate that supplier innovation improves firms' TFP primarily through three channels: stimulating firms' own innovation activities, alleviating financing constraints, and restructuring supply chain procurement networks. Fourth, heterogeneity analyses show that the TFP-enhancing effect of supplier innovation is more pronounced for firms operating in competitive industries, and innovation spillovers are stronger when suppliers and firms are located in the same region. Moreover, as firms' absorptive capacity increases, the positive impact of supplier innovation on TFP is further amplified. Supplier innovation also contributes to improvements in firms' product competitiveness and operating performance.
The marginal contributions of this paper are primarily manifested in the following three aspects. First, this study examines productivity effects from the perspective of the supply chain networks and empirically identifies the role of supplier innovation in enhancing firms' TFP. It effectively disentangles firm-level innovation from supply chain innovation spillovers, thereby enriching the literature on supply chain innovation and productivity. Second, with respect to theoretical mechanisms, this paper develops a systematic analytical framework through which supplier innovation affects firms' TFP. Along two fundamental pathways of technological progress and resource allocation efficiency, it highlights three specific channels: promoting firm innovation, easing financing constraints, and restructuring procurement networks. Third, this study not only examines the moderating role of firms' absorptive capacity in the relationship between supplier innovation and TFP, revealing how firms can amplify innovation spillovers by strengthening absorptive capacity, but also analyzes the effects of supplier innovation on firms' product competitiveness and operating performance. This not only provides feasible pathways for strengthening the effectiveness of supplier innovation, but also extends the scope of research on the spillover effects of supplier innovation.
Overall, this study extends the network perspective in the literature on innovation and productivity, and provides important theoretical and empirical evidence for firms seeking to integrate innovative resources through supply chains, as well as for governments aiming to implement more targeted innovation support policies.
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Received: 31 December 2024
Published: 24 April 2026
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