DP7846 Product and Process Innovation and Firms? decision to Export

Author(s): Ilke Vanbeveren, Hylke Vandenbussche
Publication Date: June 2010
Keyword(s): Exports, Process innovation, Product innovation, R&D, Self-selection
JEL(s): D24, F14, L25, O31, O33
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7846

We analyze the relationship between firm-level innovation activities and firms? propensity to start exporting for firms in a small open economy. We measure innovation by innovative effort (R&D) as well as by innovative output (product and process innovation). After carefully correcting for endogeneity and selection issues, the evidence points to firms self-selecting into innovation in anticipation of their entry into export markets, rather than product and process innovation triggering entry into the export market. These results suggest that governments can foster firm-level innovation through trade liberalization.