Intermediate import diversification, knowledge source diversity and firm innovation: Micro-level evidence from Chinese listed companies

•Diversification of intermediate imports promotes firm innovation.•Diversified knowledge sources play an important role in this relationship.•Firms can acquire heterogeneous knowledge by diversifying intermediate imports. This study empirically investigates the effect of intermediate import diversification on firm innovation and its underlying mechanisms, based on data from Chinese listed companies between 2000 and 2016. The findings indicate that diversification of imported intermediate goods, as measured by both the variety of imported products and the diversity of source countries, significantly enhances firms' innovative capabilities. Specifically, knowledge source diversity serves as a crucial mechanism through which import diversification promotes firm innovation. The policy implications highlight the importance of acquiring heterogeneous knowledge by expanding the diversification of intermediate goods imports.