Endogenous Innovation and Export Performance in Firms

Abstract

We investigated whether export activity is correlated with innovation in a large sample of European companies. We explicitly considered five types of innovation: a) process innovation; b) product innovation; c) process and product innovation; d) product innovation new to the firm; and e) product innovation new to the market. We considered innovation as endogenous and determined by R&D through a process characterized by the regional technological environment. Our analysis enabled us to propose an integrated model incorporating R&D, innovation, and export in a scheme of simultaneous decisions which considers their mutual correlations.Econometric results showed that product and process innovation positively affect the export intensity of manufacturing firms in Europe. The results also indicated complementarity effects between process and product innovation. The average effect on export intensity from engaging in process innovation is larger than that found for product innovation, except in cases where the product is new to the market. When both types of innovation have been carried out, a larger effect results than that observed for product or process innovation alone. Furthermore, the average marginal effect on export intensity from innovation of any kind is highly positive and significant.