Economic Research Journal, 2023, Issue 8

Authors: LYU Yue, CHEN Yongchang, ZHANG Haotian and ZHU Zhujun

Abstract: The report of the 20th National Congress of the Communist Party of China highlightedthe importance of integrating the digital economy with the real economy for high-qualitydevelopment. E-commerce platforms play a key role in this process . In 2022, China's e-commercetransactions reached CNY 43.83 trillion,accounting for 36.22% of GDP, signaling the growinginfluence of the digital economy on economic growth.nnovation is recognized as the primarydriver of economic development. Despite significant progress, China still faces gaps in basicresearch and frontier research. So establishing long-term mechanisms to boost innovationcapabilities has become a critical pursuit for high-quality development in China. Undoubtedly, theplatform economy can facilitate knowledge sharing and drive innovation of firms acrosssectors.Thus, this paper explores the effeet of e-commerce platforms on manufacturing firminnovation, providing insights and support for deepening the integration of the digital economywith the real economy.

We first present a theoretical model to study how participating in e-commerce platformsaffects firm innovation. We merge detailed micro-level data collected from the 1688 e-commerceplatform and the Chinese patent database spanning from 2002 to 2019. This allows us to provideempirical evidence on the effects and underlying mechanisms of participating in e-commerceplatforms on manufacturing firm innovation. The key findings are as follows. First, participatingin e-commerce platforms significantly enhances manufacturing firm innovation strength. Ourresults still hold even after conducting various robustness checks .Second,the mechanism testsindicate that participating in e-commerce platforms fosters manufacturing firm innovation byexpanding market demand and facilitating knowledge spillover. Third, further analysis reveals thatparticipating in e-commerce platforms significantly increases the centrality of manufacturing firmsin the innovation network and the number of notable patents they possess.

We make marginal contributions in two key areas. First, we provide novel insights into theimpact of manufacturing firms" participation in e-commerce platforms on innovation, offering aunique perspective hardly found in the existing literature. In other words, we delve into themechanisms of innovation that can drive the integration of the digital economy with the realeconomy and provide theoretical support using a stylized model. And we investigate theunderlying mechanisms, focusing on the demand effect and knowledge spillover efiect. Secondwe collect large-scale data on the citation relationships of all invention patents covering the periodfrom 2002 to 2019. accessible via the Google Patents Database. Also, we collect unique data fromthe 1688 platform, China's largest e-commerce platform. By combining these micro-level datasetswith the China Industry Business Performance Database, we establish a solid material foundationfor estimating the causal effect of participating in e-commerce platforms on firminnovation. Additionally, we apply the approach of network analysis to construct measurements for firms’ innovation positions in the patent citation network, to identify the structure of patenttechnology diffusion and more comprehensively depict the innovation level of a firm.

To accelerate the integration of the digital economy with the real economy for high-qualitydevelopment, we propose the following innovation-driven policy implications based on ourfindings. First, it is necessary to grasp the dividends and opportunities of a new round of digitatechnology revolution including e-commerce platforms.By digitally empowering transactionsusing the online marketplace, to alleviate the geographic barriers and information friction facingtraditional offline transactions,a significant increase in firms’strength of innovation can berealized. Second,it is necessary to encourage firms to use digital tools, such as user profile analysisand competitor analysis tools, offered by e-commerce platforms, to boost innovation. This canprovide more insights and inspirations for firms’R&D activities by helping them to leverageexternal knowledge and information. Third, it is necessary to bring the network effect ofe-commerce platforms into play. E-commerce platforms link firms together and enhance thetransmission of data, information, and knowledge within the innovation network. This can helpfirms to continuously move towards the center of the innovation network and realize a higher leveofinoyation.

Keywords: Digital Economy; E-commerce Platform; Firm Innovation; Knowledge Spillover