Does Internationalization Trigger Digitalization?

Abstract

This study examines the connection between participation in international trade and digital transformation using a large dataset of Chinese listed firms. The results reveal that high-productivity firms, which are mainly engaged in higher value-added produc- tion, benefit from increased export intensity as it provides them with better opportuni- ties and stronger incentives for digital innovation. In contrast, it is found that interna- tionalization is negatively associated with digitalization for low-productivity firms that rely more on cheap labor rather than innovation. Various robustness checks, including the instrumental variable estimation, support these findings. Moreover, these effects are attributed to the market effect, the competition effect, and the learning effect iden- tified by an analysis of mechanisms. A further analysis on heterogeneity shows that international trade plays a more significant role in digital transformation when firms possess non-state ownership, experience high financial constraints, target developed export destinations, or engage in ordinary exporting.

Keywords: Internationalization, Digitalization, China

JEL Classification: F14, L86, O31