Beyond Path Dependence: Local State Interventions and Firm Export Upgrading in China

While evolutionary economic geography has documented path-dependent patterns of regional industrial upgrading, it has paid less attention to the firm-level mechanisms underlying these patterns and to the role of spatially differentiated institutional environments. This paper examines how firm capabilities interact with locally varied policy regimes to shape export product upgrading in China. Using matched panel data linking firm-product exports with city-industry policy indicators, we show that firm upgrading is strongly capability-dependent, but systematically conditioned by local policy regimes. Stronger policy support weakens firms' reliance on pre-existing capabilities, facilitating upgrading into more technologically distant product spaces, while policy structure plays a critical role: competition-oriented policy regimes are more effective than selective ones in enabling path-breaking upgrading. These findings show that the ability of firms to move beyond capability-related trajectories depends critically on how local policies are structured, not merely on how much support is provided.