Innovation for product diversification: divergent roles of invention patents and utility models in export performance

This study examines how distinct patent types affect firms’ export performance in a developing economy setting, with particular emphasis on export product diversification. Leveraging a comprehensive panel data on Chinese manufacturing exporters (2000–2013), we provide new firm-level evidence of how innovation enhances trade outcomes. To address endogeneity concerns, we instrument firm-level patenting with staggered provincial subsidy programs and industry-year patent activity in a 2SLS framework. The results show that OLS severely understates innovation’s positive effects, with the 2SLS estimates revealing impacts four to five times larger. Invention patents – reflecting higher technological novelty – contribute more strongly to export value growth, whereas utility models – representing incremental innovation – exhibit a more pronounced effect on product scope expansion. These findings highlight that, despite quality concerns due to the lack of substantive examination, utility-model innovations can play an even greater role than invention patents in expanding firms’ export product scope. This insight underscores the importance of supporting incremental innovation for strengthening the resilience and adaptability of exporters amid heightened geopolitical and trade uncertainties.