Digital services trade openness and firm digital innovation: The J-curve effect and evidence from China

: Against the backdrop of the profound realignment of the global technological competition landscape, digital services trade openness has emerged as a pivotal driving force reshaping the innovation paradigms of micro-level firms. However, how firms navigate such external shocks to achieve structural breakthroughs remains insufficiently explored. Based on panel data of Chinese A-share listed firms from 2014 to 2024, this paper constructs an industry-level Digital Services Trade Openness Index (DSTOI) to systematically evaluate the impact of digital services trade openness on firms' digital innovation. We identify a striking asymmetric nonlinear relationship: openness exerts an inverted U-shaped effect on innovation quantity, while driving a U-shaped trajectory—characterized by initial inhibition followed by subsequent promotion—on innovation quality. Together, these opposite dynamics reflect a structural transformation in firms’ innovation strategies—a “digital innovation J-curve effect” whereby firms initially adopt a defensive posture that sacrifices innovation quality for rapid quantity expansion, before transitioning toward sustainable high-quality breakthroughs as digital factors are internalized and organizational adaptation is completed. The term “J-curve” here refers not to the trajectory of any single variable, but to this system-level intertemporal reconfiguration of firms’ innovation structure and core technological competitiveness. Mechanism tests reveal that financial frictions, R&D resource reallocation, and digital factor empowerment serve as the core transmission channels. The study finds that while external shocks initially compel firms to implement defensive R&D reallocations due to financial constraints, the subsequent influx and internalization of digital factors ultimately catalyze a rebound in high-quality innovation. These effects are more pronounced in regions with stringent intellectual property rights protection, firms with robust digital foundations, and regions with advanced marketization. By delineating the asymmetric evolution of innovation quantity and quality, this paper provides new empirical evidence on the nonlinear dynamics of trade openness and offers a structural decomposition of the innovation J-curve.