Abstract: Strengthening the reform of integration of domestic and foreign trade, fully tapping into the potential of the massive domestic market, is crucial for shaping new export competitive advantages centered around high added value. By incorporating the intermediate goods into a classic heterogeneous firm trade model and extending the theoretical framework established, this paper studies the impact and mechanisms of domestic and international trade integration on the domestic value-added rate of enterprise exports(DVAR), and conducts an empirical test based on micro-level enterprise data from China. The findings show that the integration of domestic and foreign trade, which balances domestic sales and exports, can effectively enhance the DVAR of enterprise exports, and this conclusion remains valid after correcting for reverse causality, omitted variable issues, and multiple robustness tests. Moreover, heterogeneity analysis results show that the positive effect is mainly reflected in the eastern region, foreign capital and general trade enterprises. Mechanism examination research reveals that domestic and international trade integration can increase the DVAR of Chinese enterprise exports through domestic substitution of intermediate goods and the promotion of R&D innovation. Therefore, improving the institutional systems for domestic and international market circulation, and then facilitating enterprises’ integration of domestic and foreign trade to build an independent and controllable domestic supply chain system, which in turn reduces reliance on imported intermediate goods and enhances the innovation drive and capability of enterprises, is a key pathway to shaping new competitive advantages in China’s export by leveraging the vast domestic market.

Key words: integration of domestic and foreign trade, domestic value-added rate of exports, new competitive advantages in competition, intermediate goods, R&D innovation