Can Innovation Policies Enhance Export Sophistication? Evidence From China

ABSTRACT Based on panel data of China's urban trade exports from 2006 to 2023, this study employs the National Innovative City Pilot (NICP) policy as a quasi‐natural experiment and adopts a Time‐varying Difference‐in‐differences approach to investigate the impact of innovation policies on urban export sophistication. The findings reveal that the NICP policy significantly enhances urban export sophistication, validating the positive efficacy of innovation policies in China's export sector. Mechanism analysis indicates that the policy promotes urban export sophistication by optimising urban infrastructure, stimulating technological innovation and advancing industrial structure upgrading. Furthermore, the empowering effect of this policy is more pronounced in late‐developing cities, especially in the less‐developed western regions, small and medium‐sized cities and cities with relatively scarce resource endowments. This study also explores the synergistic effects between the Low‐Carbon City Policy and the NICP policy, as well as between the Broadband China Policy and the NICP policy, finding that these policy synergies further enhance urban export sophistication. The research enriches the literature on urban export sophistication and provides valuable insights for China and other countries in refining policy design and implementation, as well as urban planning and development to boost export sophistication and foster foreign trade growth.