Abstract:     Under the situation of enacting opening door policy, the level of innovation in Chinese firms has proceeded a lot. Based on the data collected from the Chinese Patent Database, the figure for firm-level patent application increased from 125 thousand in 1999 to 829 in 2010. Simultaneously, the firm-level international trade developed noticeably as well. In effect, China is not only a significant trading power but also a great import nation. According to the National Bureau of Statistics Report, in 2018, the value for import trade in China was 1408.74 million yuan (about 204.276 dollars), increased by around 12.9%. Besides, this value is estimated to follow a considerable upward trend in the following years. In this case, questions —including does the trade liberalization strategy affect the firm-level innovation and the innovation knowledge width; how does this influence work — are worth to examine thoroughly.Currently, Sino-US trade friction leads to an increasingly severe environment for firms to enforce international trade in China. Whilst the Sino-US trade negotiation is continually on the go and also achieves some consistency on aspects including property rights, non-tariff barriers, agriculture and exchange rates. According to the data assembled, from 2000 to 2016, the trade liberalization degree in China promoted a lot. With the trade liberalization expands in both breadth and depth, the quantitative and qualitative innovation level grow to a high degree as well. Therefore, a larger scale of trade liberalization and a more in-depth marketized institution will promote the firm-level innovation both in breadth and depth aspects in long-run despite for the transfer cost in short-run.In this paper, we adopt the knowledge width of firm-level innovation as the proxy for innovation quality, which is able to illustrate the relation between the factor affecting innovation quality and trade liberalization. Besides, to systematically and deeply examine the relevant problems, we further split innovation to invention, utility model and exterior design and measure the corresponding knowledge width, respectively. Also, we divide the firm-level trade liberalization into intermediate product, capital product and final product trade liberalization through the information provided by BEC and SNA managed by the United Nations. At this point, the topic we studied can be further stretched to two core problems: how does the heterogeneous trade liberalization affect the firm-level knowledge width of innovation? How does trade liberalization affect the heterogeneous firm-level knowledge width of innovation? Moreover, if the degree of firm-level trade liberalization has some certain effects on knowledge width of innovation, what is the mechanism inside these effects? At last, we also investigate the effects of trade liberalization on the knowledge width of innovation when other heterogeneous factors are considered. At present, the relevant pieces of literature have enforced considerable research on the factors that affect the innovation quantity. However, the effect of the trade cost heterogeneity on knowledge width of innovation lacks investigation and theoretical explanation. In this article, starting from the perspective of knowledge width of innovation, we study how does the firm-level trade liberalization impact firm-level knowledge width of innovation. Based on the merged data collecting from (a) Chinese Patent Database (CPD) controlled by China′s State Intellectual Property Office (CSIPO) (1998-2007); (b) Annual Survey of Industrial Production (ASIP) collected by the National Bureau of Statistics of China (2000-2017); (c) Chinese Customs Database (CCD) assembled and maintained by China′s General Administration of Customs (2000-2007); (d) Trade Analysis Information System (TRAINS) maintained by the World Bank, we have the following findings: First, in general, a significant promotion effect on knowledge width of innovation is generated by an increasingly liberalized trade environment. From the classified innovation, comparing with utility model and exterior design, the improving impact of trade liberalization on the invention is the highest. Because the firms focusing on the innovation in exterior design mainly occupy a high proportion of processing trade, leading to a situation that only the trade liberalization on intermediate product activates a great promotion influence on the knowledge width of exterior design. Second, accordingly, the effects of capital goods and final goods trade liberalization on the knowledge width of innovation are higher than the influence of intermediate goods trade liberalization. When the tariff for capital goods declines, firms can import more cutting-edge machines and equipment. In fact, adopting these advanced machines and equipment can not only directly expand the knowledge width of innovated products but also further indirectly enhance knowledge width due to more highly skilled employees are employed to operate the machines.Third, the trade liberalization on final goods intensifies the toughness of competition, causing the relevant firms to focus the products on their core competitive technology, resulting in the innovation on their core products and the promotion in the knowledge width of innovation. Meanwhile, trade liberalization on capital goods requires the firms to employ more employees to high-tech positions, leading to an increase in the average payment. Therefore, it is reasonable to check whether the product type and the average wage are the mediating variables that impact the promotion effect of trade liberalization on knowledge width of innovation. Besides, those firms that pay much attention to the innovation of exterior design are more sensitive to the import of intermediate goods; hence the proportion of processing trade should be one of the channels that causing the nonlinear effect of trade liberalization on the knowledge width of innovation. Lastly, we also enforce the heterogeneous tests in terms of the other differentiating factors and find the promotion effect of trade liberalization on innovation varies when firms′ ownership, trade behavior or scale is different.

Key words:  trade liberalization, firm heterogeneity, firm innovation, opening up