The Different Effects of Heterogeneous Innovations on Upgrading of Chinese Processing TradeTheoretical Mechanisms and Empirical Studies

The upgrading of processing trade is the key feature of Chinese high-quality economic development, but technological innovation is the necessary condition for global value chain upgrading. Theoretically, based on the analytic logic of factor endowment theory, this paper models the influence of technological innovation on intra-product international task trade via algebra and geometry method. Empirically, according to the differences between different categories of domestic patents and international PCT patents in terms of technological breakthrough and knowledge originality, three different levels of technological innovation, namely low-level, middle-level and high-level, are quantitatively distinguished, and their heterogeneous influences on Chinese processing trade upgrading are quantitatively identified. Using panel data of 30 provinces in China from 2002 to 2016, the benchmark regression and robustness tests of fixed effects model have consistently shown that the higher the level of technological innovation, the greater its promotion effect on Chinese processing trade upgrading. Specifically, low-level innovation can’t promote Chinese processing trade upgrading; Mid-level and high-level innovation can both promote Chinese processing trade upgrading, and high-level innovation’s promoting effect is about ten times bigger than Mid-level’s. Finally, this paper gives a clear view on improving China's labor division status in global value chain by driving high-level innovation.