Abstract
The objective of this paper was to empirically examine the impact of exports on the level of innovation in the manufacturing sector of Malaysia and to focus on the role of heterogeneity in exports by using detailed industry-level cross-sectional data on Malaysia’s manufacturing sector in 2014. Utilising the CDM model, as postulated by Crepon, Duguet & Mairesse (1998), this paper investigated whether exporting to more countries, exporting greater volumes, and exporting greater volumes to high-income countries induced industry to increase its level of innovation. Estimates from the CDM model showed, overall, a positive impact of exports on innovation, more specifically, heterogeneity in exports mattered to industries’ innovating in the manufacturing sector in Malaysia. Additionally, exporting to additional foreign destinations, exporting greater volumes of product, and exporting more products to low-income countries, especially to South Asian and Southeast Asian countries, had a significant influence on inducing industries to engage in innovation activities.
Highlights
In both business and economics, innovation can be a catalyst for growth
Utilizing the CDM model, as postulated by Crepon, Duguet & Mairesse (1998), this paper investigated whether exporting to more countries, exporting greater volumes, and exporting greater volumes to high-income countries induced industry to increase its level of innovation
Model 1: Engaged in innovation activities or not From the results presented in Table 6, the results obtained from the Probit model indicated that all of the variables, except the volume of exports to high-income countries (Log_high), were statistically significant and positively correlated with innovation
Summary
In both business and economics, innovation can be a catalyst for growth. Innovation increases the likelihood of business success, and an innovative country will demonstrate increased productivity and performance. Innovation is an instruction to introduce new ideas and, or products to the market These new ideas lead to reducing costs, introducing faster or better processing systems, improving organizational structures and networks, and developing new systems. Malaysia is a developing country which is known for its long-standing commitment to maintaining relatively open regimes for trade and investment policy. Reflecting the country's changing financial situation, Malaysia’s trade policy has undergone many changes since the nation’s independence in 1957. Trade policies were promoted through fiscal incentives, for example, the development of free trade zones and the creation of export processing attracted significant foreign investment. Malaysia’s exports have increased by around 80%, which shows that the country has achieved amazing export growth (Trade Chakra, 2008)
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