Productivity and R&D as Drivers of Exports and Domestic Sales: Semi‐parametric Evidence from French Firm‐level Data

Abstract

AbstractEarlier work suggests that the relationship between exports and trade costs and exports and foreign market size is well described by a log‐linear functional form. A log‐linear relationship between exports and productivity is the underlying workhorse models of trade as well. The same pattern is assumed to hold for domestic sales. How the intensity of R&D affects quality or preferences and productivity, and hence, exports and domestic sales, is less well established. This paper is devoted to estimating the relationship between productivity, R&D and sales to different markets in a flexible, nonparametric way which is embedded in a semiparametric estimation approach. Using French firm‐level data, we can confirm a standard log‐linear relationship for exports. However, it takes a rather non‐linear functional form for domestic sales, suggesting that the data are generated by a potentially different class of models than the one considered traditionally.