The mediation effect of innovation in the domestic and international economic development circulation.

Based on the role of innovation in domestic economic development circulation (DEDC) and the impact of international economic development circulation (IEDC) on innovation, we construct an analytical framework for the mediation effect of innovation. Drawing on China's provincial panel data, we employ the causal steps approach to explore the impacts of IEDC on each link in the DEDC through the mediation effect of innovation. The results show that import have a direct effect on each link and export have a negative influence on distribution and consumption. Outward foreign direct investment (OFDI) has a negative impact on production and circulation through innovation. Foreign direct investment (FDI) and invisible ways have different indirect effects on each process. In addition, the influence of IEDC decreases from east to west in China, whereas import and export better promote DEDC in the central and western regions. [ABSTRACT FROM AUTHOR]