PRODUCT INNOVATION AS THE CAUSE OF EXPORT PROPENSITY IN THE CAUCASUS: EMPIRICAL EVIDENCE FOR ARMENIA, AZERBAIJAN AND GEORGIA

Abstract

Despite the extensiveness and abundance of empirical research in the existing literature, there is no clear view or position with respect to the role of innovation in exporting, especially regarding the heterogeneous impacts of different types of innovations (product, process, organizational and marketing innovations) on exporting. The objective of this article is the empirical verification of innovation as the cause of export propensity in firms from the South Caucasian countries (Armenia, Azerbaijan and Georgia). The empirical investigation is based on the data collected by the Enterprise Survey (World Bank Microdata), conducted among companies located in the Southern Caucasus. Seven hundred and seventy-six firms were selected through an appropriate procedure, including 279 from Armenia, 236 from Azerbaijan, and 261 from Georgia. Logit regression models were applied to determine the chances of exporting, depending on the type of innovations implemented by each company. The results of binomial logistic regression analysis demonstrate that product innovations play an important role in explaining SMEs’ export propensity in the South Caucasian countries. Moreover, the likelihood of export is seen to be positively related to the share of foreign capital in company structure. The general level of economy innovativeness in the Caucasus is low, but the share of foreign ownership in companies under consideration was relatively high, so the foreign investors probably played a key role in the innovations implemented by local ventures. It is most likely due to Armenia, Azerbaijan and Georgia going through an early stage in economic transition, in which soft innovations (organizational and marketing innovations) lag behind hard innovations. There is an evident lack of empirical studies of the role of innovation in the development of export in emerging countries, including the South Caucasian countries, and it still remains largely underexplored; therefore, the novelty of this research lies in the exploration of the Caucasian countries as emerging markets.