Show Summary Details

Page of

PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). © Oxford University Press, 2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may print out a PDF of a single chapter of a title in Oxford Handbooks Online for personal use (for details see Privacy Policy and Legal Notice).

date: 23 March 2019

Internationalization, Innovation, and Productivity

Abstract and Keywords

International economics research has emphasized the role of trade—imports and exports—as an important mechanism for technology flows and innovation across borders and a source of productivity growth both at the country and firm level. Empirical studies primarily have focused on understanding the relationship between exports and productivity at the firm level. Recent research has started to investigate the link between international trade and firm-level innovation activity more broadly. This chapter focuses on the complex relationship between firm internationalization strategies and their innovation behavior and links these to productivity as a measure of firm performance. In particular, it focuses on the dynamic relationship between imports, innovation, and exports, and highlights several fruitful avenues for advancing this research agenda.

Keywords: international trade, innovation, productivity, export, import, technology, internationalization

13.1. Introduction

International economics has emphasized the role of trade—imports and exports—as an important source of productivity growth of economies. The role of exporting in promoting economic well-being of countries has been well acknowledged. Exports facilitate the transfer of knowledge and ideas across countries; at the same time, faster productivity growth allows economies to increase the flow of exports (Bernard and Jensen 2004). Importing intermediate inputs is also considered an important channel for international technology diffusion. Imports augment a country’s productivity by giving access to foreign goods, and particularly foreign technologies (Keller 2004). With the increasing availability of firm-level data, research started to investigate the relationship between trade and productivity at the firm or plant level. As Salomon and Shaver (2005b, 432) correctly mention, “for the most part, however, firms engage in trade—not industries or nations. Therefore, the inferences from the more macro level might be misleading in guiding firm strategies.”

In this chapter, we take the perspective of the firm and review empirical evidence on the relationship between internationalization, innovation, and productivity at the firm level. A number of empirical regularities, or stylized facts, on firms’ international exposure through trade and productivity were established, holding across different countries and industries (for a review, see, e.g., Bartelsman and Doms 2000, or De Loecker and Goldberg 2014). There is substantial heterogeneity in the productivity levels among firms, with exporting firms being significantly more productive than non-exporting ones. Early empirical research focused primarily on understanding the positive relationship between export activity and firm productivity. On the one hand, more productive (p. 438) firms have been shown to self-select into export markets (e.g., Bernard and Jensen 1999, 2004). On the other hand, the learning by exporting effect has been documented where export activity brings further improvements in productivity (Atkin, Khandelwal and Osman 2017; De Loecker 2007; Van Biesebroeck 2005).

Similarly, a strong positive association is documented for firm productivity levels and importing activities (Bernard, Jensen, Redding, and Schott 2012). Empirical studies testing the relationship between imports and productivity find strong support for the selection process of more productive firms into imports (Amiti and Konings 2007; Kasahara and Rodrigue 2008). The evidence of the reverse effect of import activity on firm productivity is mixed. A number of studies document a positive and significant effect of imports on firm productivity levels (e.g., Augier, Cadot, and Dovis 2013). Others fail to find any significant impact of importing on firm productivity (Liu and Buck 2007; Vogel and Wagner 2010). Finally, exporting and importing activities are found to be significantly positively correlated, pointing at the fact that most firms in international trade tend to engage in both import and export activities (e.g., Aristei, Castellani, and Franco 2013). Two-way traders also consistently exhibit the highest productivity levels and growth (Castellani, Serti, and Tomasi 2010; Kasahara and Lapham 2013; Muûls and Pisu 2009), suggesting that the performance advantages of trading over nontrading firms can be partially attributed to firms that both import and export (Bernard, Jensen, Redding, and Schott 2012).

Recent research has begun to examine the link between international trade and productivity in more detail, introducing innovation activity as an important explanatory variable in the productivity-exports association. Innovation—in particular, product innovation—has been shown to positively affect the decision of a firm to become an exporter (Basile 2001; Cassiman, Golovko, and Martínez-Ros 2010). Product innovation can also serve as a productivity-enhancing investment that allows firms to enter the export market afterward (Cassiman and Golovko 2011). Moreover, research has indicated that export and innovation decisions can be actually jointly determined and can lead to future productivity growth of new exporters (Aw, Roberts, and Xu 2011; Bustos 2011; Lileeva and Trefler 2010).

In this chapter, we focus on the complex relationship between internationalization strategies (i.e., import and export activities) and innovation behavior of firms and link them to productivity as a measure of firm performance. We bring together the existing empirical evidence on the relationship between international trade, innovation, and productivity, and provide a comprehensive overview of these links. In particular, we focus on the relationship between imports, innovation, and exports and highlight a more explicit dynamic relation between these strategic decisions of firms. We discuss the role of imports and innovation as sources of higher productivity that might lead firms to enter the export markets in the future. Using the panel of Spanish manufacturing firms during 1991–2009, we test the proposed links empirically. We find evidence consistent with innovation activities leading to import and consequently export entry. We also document a positive link between exports and next-period productivity consistent with prior studies; yet only firms that combine both product innovation and imports exhibit (p. 439) higher productivity, pointing to the potential complementary between these activities. In conclusion, we indicate several avenues to advance this research agenda.

13.2. Internationalization, Innovation, and Productivity

13.2.1. Exporting, Innovation, and Productivity

13.2.1.1. Exports-Productivity Link

Empirical research in international trade has a long tradition of examining the relationship between export activities and firm productivity. Trading firms differ substantially from firms that only serve their domestic market on a number of characteristics. In particular, exporting firms are characterized by a higher productivity (e.g., Bernard, Jensen, Redding, and Schott 2007). On the one hand, this positive link is explained through a selection mechanism, whereby the more productive firms enter into export markets. Firms with initially higher productivity levels may have comparative advantages and are more likely to overcome the difficulties in starting to trade internationally, such as sunk entry costs, compared to less efficient firms in the domestic market. On the other hand, there is a possibility of learning by exporting. The underlying explanation is that by trading, firms may learn from their foreign contacts in the export markets, thereby adopting new production technologies and developing new products, and enhancing their productivity level. While both explanations are plausible, the learning by exporting hypothesis has received limited empirical support. The general finding for developed markets is that exporters already show a higher productivity than non-exporters before taking up exports, and no significant productivity advantages are observed for continuous exporters over time. The examples of studies documenting the self-selection part of the causal link between exports and productivity are Clerides, Lach, and Tybout (1998); Bernard and Jensen (1999, 2004); and Delgado, Fariñas, and Ruano (2002). The notable exceptions are Blalock and Gertler (2004), who document a significant increase in productivity following the initiation of exporting for Indonesian firms; De Loecker (2007), who finds that export entrants become more productive once they start exporting for a sample of Slovenian firms; Van Biesebroeck (2005), who finds evidence of exports increasing firm productivity in a sample of sub-Saharan African firms; and Atkin, Khandelwal and Osman (2017), who convinsingly show that exporters improve their productivity after and because they start exports.

13.2.1.2. Innovation and Selection into Exporting

Such observed heterogeneity in productivity that precedes the entry into the export markets raises an important question about the sources of higher productivity of future exporters. How do firms obtain higher productivity levels that allow them to enter (p. 440) the export market, effectively setting off the internationalization process? Innovation activity is argued to be an important factor determining a firms’ decision to begin exporting. In his seminal work, Vernon (1966, 1979) proposes the product cycle hypothesis, which explains the internationalization process of products and firms. He eventually argues that firms, in particular small to medium-sized enterprises (SMEs), move from home-based product innovation to exports and ultimately foreign direct investment (FDI), building on opportunities they encounter in the home markets. In the initial phase, the firm creates new products using the home-based resources and opportunities. As demand for a new product develops elsewhere, the firm starts exporting this product to similar product markets. With the continuing growth in international demand, the firm makes direct investments abroad to set up its own production facilities. In this way, the firm with product innovation is likely to start moving into exports to exploit its market power in foreign markets with a product of potentially superior quality (Hirsch and Bijaoui 1985; Hitt, Hoskisson, and Kim 1997). Additionally, investments in product innovation in preparation for exporting enable firms to achieve greater ability to meet the demands of the foreign customers in international markets, thus making exports potentially more profitable for a firm (Zahra and Covin 1994). In such a way, product innovation increases the potential benefits from export activities, thus making exports more attractive. Accordingly, Golovko and Valentini (2011) show that product innovation and export decisions are complementary activities in their effect on firm growth.

On the other hand, innovation may decrease the costs of adopting exports. Cassiman and Golovko (2011) show that innovation may actually be at the roots of superior productivity of future exporters and explain the self-selection of more productive firms into exports. In this way, innovation may reduce the burden of export-related costs. Research on the determinants of productivity growth suggests that firm-specific variations in demand, rather than firm technical efficiency, are the main factor explaining productivity increases (Foster, Haltiwanger, and Syverson 2008). This implies that different innovation activities might influence productivity levels and growth differentially. More specifically, product innovation might be related more closely to firm-specific demand variations, while process innovation is likely to affect technical efficiency. Consequently, product innovation is expected to affect measured productivity more, and thus entry into exports (Cassiman, Golovko, and Martínez-Ros 2010).

The effect of innovation activity on the decision of a firm to start exporting has been supported by a large number of empirical studies (see, e.g., Basile 2001; Becker and Egger 2013; Bernard and Jensen 2004; Cassiman, Golovko, and Martínez-Ros 2010; Cassiman and Martínez-Ros 2007; Roper and Love 2002). Basile (2001), for a sample of Italian manufacturing firms, shows that firms introducing product and/or process innovations either through research and development (R&D) or through investments in new capital are more likely to export. Bernard and Jensen (2004) find that firms switching primary Standard Industrial Classification (SIC) code—which could indicate new product introductions—significantly increase the probability of entering the export markets. Furthermore, Cassiman and Martinez-Ros (2007) find a strong positive (p. 441) effect of product—but not process—innovation on the decision of a firm to export. Becker and Egger (2013) show the importance of product innovation relative to process innovation in determining a firm’s export propensity for German firms. Empirical evidence also indicates the existence of the indirect channel through which product innovation may affect export decisions. Successful product innovation increases firm productivity and leads to the entry into the export market (Cassiman and Golovko 2011). The latter finding is in line with the documented self-selection of more productive firms into exports.

13.2.1.3. Innovation and Learning by Exporting

Research has also emphasized potential learning outcomes associated with exports that may lead to improved innovation performance. Attempting to explain the controversial results for learning by exporting in productivity studies, this literature highlights the advantages of innovation output measures for learning by exporting as compared to firm productivity. New technologies or information about new products acquired abroad are more likely to show up in innovation output measures than in productivity indicators; for example, there may be temporal issues in using productivity as a measure of learning (Salomon and Shaver 2005b). It may take some time before the technological information acquired abroad is incorporated into the production function of a firm to translate into productivity growth. Thus, innovation output might be a less noisy measure of learning by exporting than productivity indicators. Theoretically, such positive effect of exports on innovation is again related to (a) more intense competition in the foreign markets compared to home markets, and particularly to (b) knowledge spillovers coming from technologically sophisticated foreign partners, namely, buyers, suppliers and competitors (Silva, Afonso, and Africano 2012). Interacting with carriers of valuable knowledge abroad (e.g., leading customers or competitors) allows firms to tap into new knowledge that is not available in their home countries. Once it is transferred back home, it may be used in innovation production of the exporting firm, resulting in improved innovation performance.

The hypothesized reverse effect of exporting activity on innovation output, however, received mixed empirical support, as in the case with productivity. Alvarez and Robertson (2004) document positive association between exporting and the probability of innovating both in product and process. Salomon and Shaver (2005b) find that a firm’s export activity is positively associated with the ex-post increase in the number of product innovations and patent applications for Spanish firms. Analogously, Filipescu, Prashantham, Rialp, and Rialp (2013) document a positive effect of export activity on the number of product innovations and the likelihood of innovating in process in a sample of Spanish manufacturing firms. Using a sample of the UK enterprises, Criscuolo, Haskel, and Slaughter (2010) find that globally engaged firms generate more innovations, either product or process, which may further result in higher productivity explaining the export-productivity association. On the other hand, Girma, Görg, and Hanley (2008), using the samples of UK and Irish firms, find that while exporting seems to stimulate R&D activity in the case of Irish firms, there is no strong evidence for direct (p. 442) learning by exporting effects for UK exporters. MacGarvie (2006) adopts a more direct measure of technology transfer through exporting—patent citation data—and examines a sample of French firms, looking at the relationship between international trade and technological knowledge diffusion measured by patent citations. The findings are that exporting firms do not make more citations to patents from the countries with which the firms trade, as compared to non-exporters. Moreover, exporters do not increase the number of citations compared with similar non-exporting firms after entering export markets.

The inconclusive empirical evidence on the learning effects of exports on innovation (and productivity) might suggest that we should look for moderating factors that can shape the ability of firms to tap into foreign market knowledge as well as the way this knowledge is profitably exploited. Recent work acknowledging the heterogeneity among firms investigates such boundary conditions that may explain the heterogeneity in learning effects in terms of innovation output. These factors could be at the country (Salomon 2006a), industry (Salomon and Jin 2008), or firm level (Golovko and Valentini 2014; Salomon and Jin 2010). More specifically, the positive effect of exporting may depend on whether a firm exports to more technologically developed versus less technologically developed markets, with exporting to developed markets leading to higher innovation performance (Salomon 2006b). The realized innovation benefits may also depend on the absorptive capacity of firms approximated by firm’s relative technological capabilities—technological leaders are shown to benefit more in terms of innovation once they become exporters (Salomon and Jin 2010). The differences in learning by exporting patterns across firms may also stem from differences in innovation strategies prior to the export entry. For instance, firm size may influence the incentives of firms to invest in product or process innovation, thus leading to “purposive” learning by exporting (Golovko and Valentini 2014). Larger firms are more likely to innovate in process once they become exporters, while SMEs tend to pursue product innovation after the export entry.

13.2.1.4. Complementarity of Innovation and Exports

Finally, a recent research stream suggests that the decision to start exporting and the decision to innovate may actually be made jointly and may be complementary for future productivity growth of new entrants (Aw and Batra 1998; Aw, Roberts, and Xu 2011; Bustos 2011; Lileeva and Trefler 2010; Van Beveren and Vandenbussche 2010). In particular, the fact that export entry is often associated with higher innovation output is precisely the consequence of the complementarity between these two activities for growth (Golovko and Valentini 2011). Lileeva and Trefler (2010) argue that for firms with lower productivity, investing in innovation is justifiable only if it is accompanied by larger sales that come with exporting. Lower foreign tariffs would induce these firms not only to export, but also to simultaneously engage in product innovation and to adopt advanced manufacturing technologies to increase their productivity. Higher-productivity firms, however, will start exporting without additional investments in innovation. For a sample of Canadian plants that were driven to export to the US market because of tariff (p. 443) cuts, they find support for this hypothesis. Similarly, for a sample of Argentinian firms, Bustos (2011) shows that trade liberalization inducing firms to export also induces these firms to invest in technology upgrading due to increases in export revenues. It is thus possible that the observed association between exports and innovation performance is not merely a selection of more innovative firms into exports or a pure learning by exporting outcome, but also suggests purposeful investments that firms make precisely in relation with their decision to enter the export markets.

13.2.2. Importing, Innovation, and Productivity

13.2.2.1. Imports-Productivity Link

While most of the international trade literature has concentrated on exports, much less attention has been focused on imports (i.e., internationalization on the input side). Recent research on imports documents a positive and significant link between import activities of firms and productivity. Similar to studies on exporting, literature indicates the presence of the selection mechanism behind the imports-productivity association. Importing activity entails sunk costs related to the process of sourcing from abroad, such as contract-specific investments or costs of transferring the embedded technology (Altomonte, Aquilante, Békés, and Ottaviano 2013). Firms with ex-ante higher productivity can bear these costs and find it profitable to start importing. Empirical studies on firm outsourcing activities and productivity find consistent evidence on the self-selection into foreign outsourcing (i.e., importing intermediate products), as well as offshoring (Fariñas, López, and Martín-Marcos 2014; Fariñas and Martín-Marcos 2010; Kohler and Smolka 2014; Kohler and Smolka 2012; Tomiura 2007). For Spanish firms, Fariñas and Martín-Marcos (2010) and Fariñas, López, and Martín-Marcos (2014) show that firms that undertake outsourcing activities abroad (i.e., import intermediate goods from foreign suppliers) are ex-ante more productive compared to firms that do not engage into outsourcing. Analogously, Kohler and Smolka (2012, 2014) find evidence for selection of more productive firms into foreign outsourcing activities. Tomiura (2007) shows that although firms engaged in outsouring are on average less productive than exporters or firms with FDI, they are still ex-ante more productive than purely domestic firms, thereby confirming productivity selection for a sample of Japanese firms.

A potentially more interesting question is whether imports can trigger “learning,” leading to productivity benefits for importing firms, analogously to the learning by exporting hypothesis. Theoretically, the effect of imports on productivity can be realized through a number of channels. First, productivity can increase with the increase in the number of varieties imported, because imported inputs may have a potentially higher price-adjusted quality, and they can be imperfect substitutes for domestic inputs (Halpern, Koren, and Szeidl 2015). Thus, by importing new intermediate good varieties and thereby expanding the set of inputs used in the production process, firms reach better complementarity in production (Bas and Strauss-Kahn 2014). (p. 444) Halpern, Koren, and Szeidl (2015) examine such an effect on productivity for Hungarian firms and find that combining imperfectly substitutable foreign and domestic varieties is responsible for the most part of productivity gains from imports (about 60% of observed productivity increase), with the rest attributed to the quality effects. In line with their findings, Goldberg, Khandelwal, Pavcnik, and Topalova (2010) document the positive effect of the expansion in the variety of imported intermediate inputs due to tariff reduction on the product scope of Indian firms. Similarly, Bas and Strauss-Kahn (2014) show that an increase in the set of imported input varieties significantly increases the number of varieties the firm exports, with the effect running through the productivity increase reached by better complementarity of inputs.

Second, potential positive changes in productivity can be related to better technology embedded in the imported inputs, and higher-quality machinery (Belderbos, Van Roy, and Duvivier 2013; Lööf and Andersson 2010; Veugelers and Cassiman 2004), which suggests the mechanism analogous to the one proposed by learning by exporting studies. Imports may serve as a channel for technological knowledge diffusion, leading to learning, and consequently to higher productivity. Accordingly, Veugelers and Cassiman (2004) find that firms active on the international technology market are also more likely to be active in the domestic technology market, implying that direct and indirect productivity enhancements in the local economy would be generated through these firms’ access to the international technology markets. Belderbos, Van Roy, and Duvivier (2013) do find these productivity enhancements for the case of Belgian firms. Lööf and Andersson (2010), focusing on imports as a channel for embodied technical change and technology diffusion, find that Swedish firms that import a higher fraction of imports from R&D–intensive and technologically advanced countries have higher productivity.

Despite empirical support for a number of mechanisms behind the imports-productivity relationship, empirical studies that directly associate imports with post-entry productivity report mixed results. A number of studies document a positive and significant effect of imports on firm productivity levels (Amiti and Konings 2007; Augier, Cadot, and Dovis 2013; Kasahara and Rodrigue 2008). Alternatively, Liu and Buck (2007) and Vogel and Wagner (2010) find no evidence for the impact of imports on post-entry productivity.

13.2.2.2. Imports, Exports, Innovation, and Productivity

The productivity increases associated with technology-diffusion mechanisms suggest an important role of innovation in explaining the imports-productivity association. As firms import higher-quality inputs, new materials and components, they may be able to transform them in higher-quality outputs while developing new and better products. Consequently, we observe productivity increase associated with innovation activities. A number of studies provide evidence on the positive impact of imports on innovation output. Using patent citations, MacGarvie (2006) shows that the inventions of importers cite significantly more foreign patents from countries of imports compared to non-importers. Goldberg, Khandelwal, Pavcnik, and Topalova (2010) document that (p. 445) the growth in imports due to the reduction of import tariffs positively affects the propensity to introduce new products for domestic firms. Alvarez and Robertson (2004) argue that in the context of trade liberalization, the increasing access to imports of intermediate inputs will positively influence technological innovation because importing firms are likely to absorb and adopt new technologies incorporated in imported goods. For Mexican firms, they show that importing intermediate inputs is associated with the adoption of new technologies.

The positive effect of imports on productivity may also suggest that imports serve as productivity-enhancing investment, facilitating future export entry. Export and import activities are found to be strongly correlated, that is, firms tend to engage in both activities simultaneously (e.g., Aristei, Castellani, and Franco 2013; Bernard, Jensen, Redding, and Schott 2012). The underlying mechanism implies that by adopting an import strategy, firms might experience positive changes in innovation performance due to learning by importing, which in turn enhance productivity and make exports viable. Empirical studies report some evidence consistent with a particular succession of adoption decisions starting from importing to innovation and finally exporting (Aristei, Castellani, and Franco 2013; Damijan and Kostevc 2015). Alternatively, Altomonte, Aquilante, Békés, and Ottaviano (2013) find that firms that adopt exports as a mode of internationalization use R&D activities and imports as alternative strategies for sourcing new inputs and creating new products. Thus, R&D and imports as source of better-quality inputs are substitutes for the export decision (Altomonte, Aquilante, Békés, and Ottaviano 2013).

Overall, existing evidence on firms’ trade activities and innovation decisions suggests a complex set of relationships between exports, imports, and innovation. Figure 13.1 maps the links between firm internationalization, innovation, and productivity, as documented by empirical studies. Innovation—in particular, product innovation—is positively related with the firm’s export decision through a direct demand expansion effect (1). In its turn, exporting may facilitate the diffusion of new technological information not available in the home markets, leading to learning and thus more innovations (2). Such “learning” may also occur as a result of importing intermediate products, suggesting the positive effect of imports on the decision of a firm to innovate and on productivity (3). Additionally, export and import decisions are (p. 446) highly correlated, suggesting the eventual joint adoption of these internationalization strategies (4). Being in essence a performance measure, productivity intervenes into the picture by (a) identifying a performance threshold needed to engage into exports or imports activities, and (b) measuring the performance effects of these activities. Links (6) and (7) identify the observed export-productivity and import-productivity associations, while link (8) reflects the positive effect of (product) innovation on firm productivity.

Internationalization, Innovation, and ProductivityClick to view larger

Figure 13.1. Internationalization and innovation activities.

Given the large number of empirical studies on the trade-productivity link, we understand relatively well the requirements and the immediate consequences of firm export and import decisions in terms of productivity measures of performance. We still lack clear causal mechanisms that relate firm decisions and their subsequent decisions to internationalize (export and/or import). Firm decision to innovate has been identified by research as an important antecedent of export activities. We also have support (although with mixed results) for innovation being an outcome of exports and imports activities. Yet, we need to better understand the dynamic process that relates firm decisions to invest in innovation, import, or export and that explains the observed export-innovation and import-innovation associations.

Existing empirical evidence identifies a particular dynamic path going from imports to more innovation and leading to export decision (3)–(1). If we abstract from the trade liberalization context, this raises an important question about why firms initiate importing in the first place. Little is known about the determinants of the firm decision to become an importer. We argue that innovation is not just an outcome (or even a byproduct) of importing that is used as a channel for technology diffusion, as prior research suggests. Firms may intentionally start importing in search of new inputs needed for their innovation processes. Such possibility of proactive behavior on the part of the firm suggests that the decision to innovate may precede the decision to import, or that these decisions may be made jointly, resulting in improved productivity and allowing firms to start exporting. The path (5)–(3)–(1) of Figure 13.1 identifies the proposed mechanism. In what follows we conduct an empirical analysis that intends to clarify the relationship between import, innovation, and export decisions of firms. We also relate outcomes of these decisions to firm productivity as a measure of performance.

13.2.3. Internationalization and Innovation by Spanish Firms

The data for the empirical analysis come from the firm-level annual survey (ESEE) of Spanish manufacturing firms for the period 1991–2009. The project is conducted by the Fundación Empresa Pública with financial support of the Spanish Ministry of Science and Technology. The information collected each year is consistent with the information in the previous years. The data include the population of Spanish manufacturing firms with 200 or more employees. It also contains a stratified sample of small firms comprising 4% of the population of small firms with more than 10 and less than 200 (p. 447) employees. Small firms that exit the original sample during the sampling period are replaced by firms with similar characteristics drawn from the population.

We choose to focus on SMEs, that is, firms that had less than 200 employees in 1991. We do so for a number of reasons. SMEs, unlike large enterprises, are likely to have resource constraints, which makes the internationalization process challenging for them. Export and import activities as internationalization strategies are particularly important for these firms, as those involve comparatively lower levels of resource commitment and risk than FDI (Leonidou and Katsikeas 1996; Lu and Beamish 2006). In our sample of SMEs, few firms actually have FDI. Only about 0.3% of the firms report FDI, compared to approximately 48% performing export and import activities. Moreover, innovation (product innovation in particular) plays an important role in the internationalization process of SMEs. Successful product innovation is shown to increase the likelihood of a firm to start exporting and to positively affect firm productivity levels (Cassiman, Golovko, and Martínez-Ros 2010). On the contrary, product innovation may not be as important in driving the export decision for larger firms, as these firm likely passed the early internationalization stage and are for the most part experienced exporters and importers. About 91% of large firms in the sample export and about 92% of these firms engage in import activities. The original samples of SMEs includes 1,183 firms in 1991 and 1,550 firms in 2009 from 20 distinct industries (Table 13.1). Due to missing values, the resulting sample is an unbalanced panel with 22,185 firm-year observations during the period 1991–2009.

We are interested in assessing the relationship between import and export activities and firm innovation output. For each firm and for every year, we know whether a firm exported, imported, or innovated in product or process. Our main variables of interest are the following: (a) import—a dummy variable that equals 1 if a firm imported in year t, and 0 otherwise; (b) export—a dummy variable that equals 1 if a firm exported in year t, and 0 otherwise; (c) product innovation—a dummy variable that equals 1 if a firm reported product innovation occurring in year t, and 0 otherwise; (d) process innovation—a dummy variable that equals 1 if a firm reported process innovation occurring in year t, and 0 otherwise.

Our empirical strategy is the following. We focus on importing as a baseline activity and analyze the export and innovation behavior of firms in relation to their import decisions. Empirically, we split our sample into four subsamples, depending on the firm import status during the 1991–2009 period. We define subsamples in the following way. Always importing firms are firms that imported during the entire sample period, non-importers are those firms that did not perform any importing, and “switchers” are firms that changed their importing status during 1991–2009. Among the switching firms we make a distinction between “entrants” and “exiters.” Entrants into importing are those firms that changed their importing status from non-importers to importers during 1991–2009. We distinguish between “strict” entrants and “switching” entrants depending on whether the entry occurred once or multiple times. Finally, exiters are those firms that were importers in 1991 but exited importing at some point during the sample period. (p. 448)

Table 13.1 Industry Breakdown

Industry

Number of Firms–Year Observations

Meat products

637

Food and tobacco

2,208

Beverages

355

Textiles

2,340

Leather and footwear

924

Wood and wood products

809

Paper

640

Publishing and printing

1,292

Chemical products

1,109

Plastic and rubber products

1,247

Non-metal mineral products

1,613

Metallurgy

423

Metallic products

2,804

Machinery and equipment

1,335

Office machinery and computing

526

Electronics and electronic equipment

833

Autos and motor vehicles industry

601

Other transport equipment

353

Furniture

1,415

Miscellaneous manufacturing

642

Total

22,106

Table 13.2 summarizes the distribution of firms in the sample according to their import status. About 68% of firms in the sample engage in importing activities. Approximately 29% of these importing firms are continuous importers, while 35% of firms are entrants changing their import status from non-importers to importers during 1990–2009. About 22% of the entrants continue to import after the entry (“strict” entrants), suggesting that import activity is rather persistent over time. About 31% of firms never imported during the sample period.

Table 13.3 presents the summary statistics of relevant firm-level variables across these subsamples. Continuous importers and non-importers differ significantly in size (Table 13.3, columns 1–2). Consistent with prior findings, importers are also significantly more likely to perform exporting activities, to engage in outsourcing, and to be foreign owned. Innovation output variables (R&D/product/process innovation frequencies, R&D intensity, and number of product innovations) are also significantly different for these two groups. Importers invest more intensely in R&D and innovate more often than (p. 449) (p. 450) non-importers, both in process and product. Column 3 shows the summary statistics for the firms that entered imports during 1991–2009. These firms display figures lying between those of importers and non-importers. This is to be expected since these firms are in transition between the non-importing and importing groups. Firms entering into imports perform better in terms of innovation activities also compared to exiting firms (column 4), showing significantly higher frequencies of innovation and R&D investment decisions.

Table 13.2 Import Status of Firms

Number of Firms–Year Observations

Importing firms

15,095 (68.28%)

          Continuous importers

6,333 (28.65%)

       Entrants into imports

7,743 (35.02%)

                   Entered once (“strict” entrants)

4,894 (22.14%)

                  Entered twice

1,942 (8.79%)

                  Entered more than twice

907 (4.10%)

       Exiters from imports (no re-entry)

1,019 (4.61%)

Never importing firms

7,011 (31.72%)

Total

22,106

Table 13.3 Summary Statistics for the Four Subsamples of Firms Based on Import Status

Continuous Importers

Never Importing Firms

Switchers

Enter

Exit

1

2

3

4

Number of employees

76.04 (57.8)

23.95 (23.6)

44.9 (43.2)

42.15 (39.2)

Import status (0/1)

1

0

0.50 (0.49)

0.46 (0.49)

Import intensity (scaled by sales, %)

16.26 (15.7)

0

3.66 (8.5)

3.63 (7.76)

Export status (0/1)

0.82 (0.38)

0.15 (0.35)

0.52 (0.49)

0.43 (0.49)

Export intensity (scaled by sales, %)

23.6 (26.2)

2.7 (11.3)

11.2 (21.2)

9.32 (19.1)

Outsourcing status (0/1)

0.48 (0.49)

0.25 (0.43)

0.40 (0.49)

0.30 (0.45)

Foreign capital, %

19.04 (37.3)

0.54 (6.7)

4.45 (19.1)

4.61 (18.9)

R&D status (0/1)

0.42 (0.49)

0.06 (0.24)

0.19 (0.39)

0.13 (0.34)

R&D intensity (scaled by sales, %)

0.92 (2.34)

0.13 (0.97)

0.51 (2.5)

0.24 (1.5)

Process innovation status (0/1)

0.33 (0.47)

0.18 (0.39)

0.27 (0.44)

0.20 (0.40)

Product innovation status (0/1)

0.27 (0.44)

0.07 (0.26)

0.18 (0.39)

0.13 (0.34)

Product innovation number

2.58 (15.1)

0.46 (4.6)

2.32 (22.4)

0.69 (3.2)

Import technology status (0/1)

0.08 (0.28)

0.000 (0.02)

0.02 (0.13)

0.01 (0.13)

Number of firms–year observations

6,333

7,011

7,743

1,019

We proceed by looking for the simple empirical patterns associating import, export, and innovation decisions. Table 13.4A shows the transition probabilities for the different combinations of past and present export status. More than 90% of firms remain in the same state (continuous exporters and non-exporters). About 7.5% of non-exporters enter the export market in the next period. We would like to understand the transition from non-exporters to exporters and associate it with the import status of firms. Table 13.4B shows the effect of imports on the transition probability from non-exporting to exporting. About 17% of importers make this transition, compared to about 7.5% for the unconditional case. Tables 13.5A and 13.5B and Tables 13.6A and 13.6B provide the same statistics for the product and process innovation variables. About 7% and 13% of firms with no product and process innovation at time (t – 1) become innovators in product and process, respectively, in the next period. The percentage of firms starting innovating while being importers increases to 9% and 15% for product and process innovation, respectively. Product and process innovators are also more likely to continue innovating (p. 451) if at the same time they are importing (61% versus 67% and 58% versus 62% of firms for product and process innovation, respectively). Overall, Tables 13.413.6 suggest that import status is strongly associated with both the decisions to export and innovate.

Table 13.4A Transition Probabilities, Exports

Export (t)

0

1

Export (t – 1)

0

92.54

7.45

1

5.93

94.06

Table 13.4B Transition Probabilities, Exports Conditional on Import Status

Export (t)

0

1

Export (t – 1)

0

Import (t – 1)

95.74

4.25

0

1

83.24

16.75

1

Import (t – 1)

12.68

87.31

0

1

3.68

96.31

Table 13.5A Transition Probabilities, Product Innovation

Product Innovation (t)

0

1

Product innovation (t – 1)

0

92.97

7.02

1

38.14

61.85

Table 13.5B Transition Probabilities, Product Innovation Conditional on Import Status

Product Innovation (t)

0

1

Product innovation (t – 1)

0

Import (t – 1)

94.95

5.04

0

1

90.59

9.40

1

Import (t – 1)

49.40

50.59

0

1

33.21

66.78

We proceed by focusing on the subsample of “strict” entrants into imports. This subsample is of particular importance if we want to evaluate the effect of import on export and innovation activities: we can observe changes in export and innovation behavior that are associated with the change in import status. Specifically, we examine whether importers differ significantly from non-importers in their export and innovation behavior, and we trace longitudinally the innovation and export decisions of entrants—that is, firms that start importing—to assess the potential relationship with imports.

Table 13.7 presents the results of the test for equality of means for innovation and export frequencies for the subsample of entrants into imports before and after the entry took place. First, we compare the firms at time (t – 2) and time (t), where (t – 2) corresponds to two years before entry, and time (t) to the year of entry into imports. Second, we do the same comparison at time (t – 2) and time (t + 2), where (t – 2) corresponds to two years before, and (t + 2)—to two years after the entry into imports.

Overall, we observe an increase in the innovation proportions for both product and process innovation. Importing is associated with significant increase in product- as well as process-innovation frequency at the year of entry. For the time window two years before to two years after entry, however, the increase in innovation frequencies is not (p. 452) (p. 453) statistically significant. Concerning export activity, the difference between pre-entry and post-entry export frequency is highly significant for both time windows.

Table 13.6A Transition Probabilities, Process Innovation

Process Innovation (t)

0

1

Process innovation (t – 1)

0

86.98

13.01

1

41.82

58.17

Table 13.6B Transition Probabilities, Process Innovation Conditional on Import Status

Process Innovation (t)

0

1

Process innovation (t – 1)

0

Import (t – 1)

89.12

10.87

0

1

84.48

15.51

1

Import (t – 1 )

48.14

51.85

0

1

37.63

62.36

Table 13.7 Differences in Means in Innovation and Export Propensity for the Group of Entrant Firms before and after Entering Imports

Difference in Means

2 years before to year of entry

2 years before to 2 years after

Export (0/1)

0.11***

0.12***

Product innovation (0/1)

0.03*

0.00

Process innovation (0/1)

0.04*

0.00

(*, **, ***) are significantly different from zero at the 10%, 5%, or 1% level, respectively.

To take into account other variables that may influence firm innovation and export decisions, we conduct regression analysis. We compare the subsample of “strict” entrants into importing with the subsample of never importing firms and estimate random effects linear probability models assessing firms’ propensity to innovate in product/process and export:

Yit=j=33γjPij+βXit+αi+eit,

where Yit stands for product innovation, process innovation, and export decisions, respectively; Pi,–3,. . .,Pi,3 are the dummy variables that equal 1 in the moment (t3), . . . t, . . . (t + 3) respectively, and moments (t3), . . . (t + 3) are years before/after the entry into imports; the vector Xit denotes other firm characteristics influencing innovation and export decisions.

We include size, percentage of foreign capital, R&D intensity, year, and industry effects as relevant determinants of the decisions to export and innovate. R&D investments as an input in innovative effort can foster technological innovation (Salomon and Shaver 2005a). Specifically, we expect R&D expenditures normalized on firm sales (R&D intensity) to positively affect the innovation output. Firm size (size) measured as the logarithm of sales stands as an important control variable that may affect both export and innovation decisions (Bernard and Jensen 1999). Being a part of a foreign company may affect the innovation strategy of a firm compared to its purely domestic counterparts. It might also facilitate the process of becoming an exporter (Basile 2001). We include a percentage of foreign capital that controls for the presence of foreign ownership in the capital structure of the firm (foreign capital). The vectors of industry and year dummies are inserted to control for the industry heterogeneity and macroeconomic conditions. Table 13.8 presents the results of the estimation.

For the innovation variables, the increase in product innovation frequency is observed already one year before starting importing, with the most pronounced effect at the year of entry into imports (Table 13.8, column 1). Firms exhibit a 5% increase in the probability to innovate in product prior to becoming importers in the next year. In its turn, becoming an importer is associated with almost 6% increase in the probability of introducing product innovation in the year of entry into imports. With respect to process innovation, the results indicate significant differences between non-importers and new importers around the entry time, suggesting that process innovation adoption accompanies import entry. The likelihood of process innovation is about 8% higher for the future importers compared to non-importing firms two years and one year before import entry. The new importers tend to have about 6% higher probability of having process innovation at the moment of entry. Further, we observe a positive significant difference in export adoption at the year of starting imports, with the stable effect lasting for the coming three years. New entrants are about 6% more likely to export compared (p. 454) to non-importers at the year of entry. In contrast, in years preceding import entry, new entrants are less likely to become exporters compared to similar non-importers.

Table 13.8 Random Effects Linear Probability Model

Product Innovation

Process Innovation

Export

1

2

3

P-3 (t – 3)

–0.009 (0.02)

0.006 (0.02)

–0.049** (0.01)

P-2 (t – 2)

0.01 (0.01)

0.08*** (0.02)

–0.01 (0.01)

P-1 (t – 1)

0.05*** (0.01)

0.08*** (0.01)

–0.01 (0.01)

P0 (t 0)

0.057*** (0.01)

0.06*** (0.01)

0.06*** (0.01)

P1 (t + 1)

0.00 (0.01)

0.04** (0.01)

0.05*** (0.01)

P2 (t + 2)

–0.00 (0.01)

0.05** (0.02)

0.06*** (0.01)

P3 (t + 3)

–0.03 (0.01)

0.03 (0.02)

0.06*** (0.01)

Size

0.02*** (0.001)

0.05*** (0.005)

0.10*** (0.005)

Foreign capital, %

0.0005** (0.0002)

–0.0007* (.0003)

0.001*** (0.0002)

R&D intensity

0.018*** (0.001)

0.012*** (0.002)

0.002* (0.001)

Intercept

–0.23*** (0.06)

–0.58*** (0.09)

–1.10*** (0.09)

Industry, time effects

included

included

included

Number of observations

11,905

11,905

11,905

(*, **, ***) are significantly different from zero at the 10%, 5%, or 1% level, respectively.

The results in Table 13.8 suggest that importing SMEs are more prone to invest in product and process innovation than non-importers already before entry into imports. These findings are consistent with the joint adoption of innovation and import activities, suggesting that imports are needed for both product and process innovations. In addition, process innovation frequency increases even after the entry into imports, pointing at possible additional benefits that new importers get in terms of new production processes. The results for the exports variable suggest that SMEs are more likely to start exporting once they become importers, indicating that the decision to export may follow import entry.

Finally, we relate the firm internationalization (export and import) and innovation decisions to performance by estimating the model with productivity as a dependent variable.1 We include firm physical capital (measured as the logarithm of stock of tangible assets) and labor (measured as the logarithm of the number of employees in a given year) to account for the differences in output that can be attributed to the increase in capital and labor inputs. The independent variables are export, import, and innovation decisions made by firms in a previous year. Sets of industry and year dummies are included as standard controls. We estimate a random effects panel data model using the subsamples of non-importers and firms entering into imports. Table 13.9 lists the results of the regression. (p. 455)

Table 13.9 Productivity Regression, Random Effects Model

1

2

Import (t – 1)

0.07*** (0.01)

Product innovation (t – 1)

–0.001 (0.01)

Import and product innovation (t – 1)

0.049* (0.02)

No import and product innovation (t – 1)

0.01 (0.02)

Import and no product innovation (t – 1)

0.08*** (0.01)

Process innovation (t – 1)

0.02* (0.01)

0.02* (0.01)

Export (t – 1)

0.07*** (0.01)

0.07*** (0.01)

Capital

0.006*** (0.001)

0.006*** (0.001)

Size

0.99*** (0.01)

0.99*** (0.01)

Foreign capital, %

0.002*** (0.00)

0.002*** (0.00)

Intercept

10.13*** (0.10)

10.12*** (0.10)

Industry and time effects

included

included

Number of observations

9,710

9,710

(*, **, ***) are significantly different from zero at the 10%, 5%, or 1% level, respectively.

The results in column 1 show that both import and export activities in a previous year are positively associated with the current productivity levels. The same is true for the process innovation variable. The coefficient of product innovation suggests that product innovation is not significantly related to the productivity in the next period. If exclusive combinations of product innovation and importing are used, the results show that combining product innovation and imports is positively associated with productivity, as well as just being an importer. However, these coefficients are not significantly different, suggesting the positive and significant effect of imports and not product innovation on productivity. Having only product innovation is not significantly associated with productivity (column 2).

Overall, our empirical results support the hypothesis that innovation and import decisions may be jointly determined. We find evidence of importing activity being significantly associated with both product and process innovation activity. Moreover, simple regression analysis suggests a particular timing for innovation and import decisions—entrants into import activity tend to innovate more often, in both product and process, shortly before starting importing, compared to never importing firms. The results are also in line with the hypothesized internationalization path with exports following import activity. Our findings suggest that export and import decisions are significantly positively associated, and export frequency increases right after SMEs adopt import activity. Therefore, we find some empirical support for the path (5)–(3)–(1) on Figure 13.1. We also document the positive effect of internationalization and innovation (p. 456) activities on firm productivity, measured as log of value added, in line with prior findings on internationalization-productivity association.

13.3. Discussion and Conclusions

In this chapter, we have provided an overview of the existing literature on the relationships between firm internationalization and innovation behavior, linking these decisions to productivity as a firm performance measure. The review of the empirical findings shows a complex dynamic interaction between export, import, and innovation decisions. By innovating, firms can enter new markets with novel products or products of better quality, thus making future exports more successful. At the same time, exporting can promote knowledge diffusion from abroad, resulting in enhanced innovation performance. Imports can also serve as a conduit for technology diffusion, facilitating learning and consequently making firms innovate more.

We argue for a need to better understand an interrelation between exports, imports, and innovation and propose a particular mechanism that may underlie these links. Innovation—product innovation in particular—may trigger firms to start importing in search for novel inputs, leading to even more innovation and productivity enhancements, which in turn facilitate export entry. Our empirical analysis is consistent with the proposed path, also highlighting the performance effects of combining export, import, and innovation.

Based on the overview and our empirical results, we indicate several research areas that need further development. In particular, we still know very little on the interaction between import and innovation strategies and their role as productivity-enhancing investments potentially leading to future exporting. In line with some prior empirical findings, our results indicate that imports and innovations seem to precede the entry of firms into the export markets. Import, innovation, and export investments also identify the most productive firms in our sample, which may suggest a complementarity between imports, exports, and innovation for productivity. Research should focus on explaining the mechanisms that might underlie the complex dynamic relationship between imports, innovation, and exports and testing these mechanisms empirically. A related question that deserves attention is the joint effect of import, innovation, and export activities on firm performance and potential complementarities that can be realized.

Another underexplored topic is related to the factors that determine the decision of firms to engage in import activities. Using the panel of Spanish firms during 1991–2009, we provide preliminary evidence on the interplay between import and innovation decisions. Our findings suggest that firms tend to pursue both product and process innovation before or simultaneously with becoming importers. Thus, the decisions to import and innovate might be made jointly, suggesting that firms make decisions to (p. 457) internationalize, and import in particular, in accordance with their specific needs related to their innovation strategy. In other words, firms may proactively search for new inputs needed for their innovation processes, which leads to import decisions. Our explanation does not exclude the possibility of “learning” by importing, but it highlights the importance of a firm’s agency in making decisions on internationalization. More research is needed on the drivers of a firm’s decision to become an importer.

Furthermore, we find differences in product and process innovation behavior associated with the import entry. Product innovation and process innovation also seem to differ in their effects on productivity, with product innovation having an effect only if accompanied by imports. Differential roles of product versus process innovation in the import-export-productivity nexus should be a topic for future research.

Finally, further research should focus on the boundary conditions—or moderating factors—that can shape the ability of firms to learn from international trade activities and profitably exploit the new knowledge. Learning by trading appears to be an important mechanism in the internationalization-innovation circle. Recent work acknowledging the heterogeneity among firms has begun to focus on factors that may explain the heterogeneity in the learning by exporting effect on innovation and productivity. Exploring the contingencies in learning by trade, and in particular learning-by-importing, can constitute a profitable avenue for future research. Examples of such contingency factors could be origins of imports or the type of importing performed by firms (importing intermediate products versus final goods).

In conclusion, we need to better understand the dynamic process that relates firm decisions to invest in innovation, import, or export, as those activities likely determine future growth trajectories and performance of firms. We also believe that a better understanding of the connection between firm innovation decisions and internationalization of its activities is necessary for improving public policies aimed at stimulating firm internationalization and innovation decisions. For instance, if import and innovation activities are a source of productivity growth leading to export entry, then policies aimed at promoting imports and innovation, and product innovation in particular, might be more effective than direct export promotions, at least for firms “at risk” for importing and innovating. The key policy issue then becomes which type of investment to leverage.

References

Altomonte, C., T. Aquilante, G. Békés, and G. I. Ottaviano. 2013. :Internationalization and Innovation of Firms: Evidence and Policy.” Economic Policy 28(76): 663–700.Find this resource:

Alvarez, R., and R. Robertson. 2004. “Exposure to Foreign Markets and Plant-Level Innovation: Evidence from Chile and Mexico.” The Journal of International Trade and Economic Development 13(1): 57–87.Find this resource:

Amiti, M., and J. Konings. 2007. “Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia.” The American Economic Review 97(5): 1611–1638.Find this resource:

Aristei, D., D. Castellani, and C. Franco. 2013. “Firms’ Exporting and Importing Activities: Is There a Two-Way Relationship?” Review of World Economics 149(1): 55–84.Find this resource:

Atkin, D., A.K. Khandelwal and A. Osman. 2017. “Exporting and Firm Performance: Evidence from a Randomized Experiment” The Quartely Journal of Economics 132(2): 551–615.Find this resource:

Augier, P., O. Cadot, and M. Dovis. 2013. “Imports and TFP at the Firm Level: The Role of Absorptive Capacity.” Canadian Journal of Economics/Revue canadienne d’économique 46(3): 956–981.Find this resource:

Aw, B. Y., and G. Batra. 1998. “Technological Capability and Firm Efficiency in Taiwan (China).” The World Bank Economic Review 12(1): 59–79.Find this resource:

Aw, B. Y., M. J. Roberts, and D. Y. Xu. 2011. “R&D Investment, Exporting, and Productivity Dynamics.” American Economic Review 101(4): 1312–1344.Find this resource:

Bartelsman, E. J., and M. Doms. 2000. “Understanding Productivity: Lessons from Longitudinal Microdata.” Journal of Economic Literature 38(3): 569–594.Find this resource:

Bas, M., and V. Strauss-Kahn. 2014. “Does Importing More Inputs Raise Exports? Firm-Level Evidence from France.” Review of World Economics 150(2): 241–275.Find this resource:

Basile, R. 2001. “Export behaviour of Italian Manufacturing Firms over the Nineties: The Role of Innovation.” Research Policy 30(8): 1185–1201.Find this resource:

Becker, S. O., and P.H. Egger. 2013. “Endogenous product versus Process Innovation and a Firm’s Propensity to Export.” Empirical Economics 44(1): 329–354.Find this resource:

Belderbos, R., V. Van Roy, and F. Duvivier, F. 2013. “International and Domestic Technology Transfers and Productivity Growth: Firm Level Evidence.” Industrial and Corporate Change 22(1): 1–32.Find this resource:

Bernard, A. B., and J. B. Jensen. 1999. “Exceptional Exporter Performance: Cause, Effect, or Both?” Journal of International Economics 47(1): 1–25.Find this resource:

Bernard, A. B., and J. B. Jensen. 2004. “Exporting and Productivity in the USA.” Oxford Review of Economic Policy 20(3): 343–357.Find this resource:

Bernard, A. B., and J. B. Jensen. 2004. “Why Some Firms Export.” Review of Economics and Statistics 86(2): 561–569.Find this resource:

Bernard, A. B., J. B. Jensen, S. J. Redding, and P. K. Schott. 2012. “The Empirics of Firm Heterogeneity and International Trade.” Annual Review of Economics 4(1): 283–313.Find this resource:

Bernard, A. B., J. B. Jensen, S. J. Redding, and P. K. Schott. 2007. “Firms in International Trade.” The Journal of Economic Perspectives 21(3): 105–130.Find this resource:

Blalock, G., and P. J. Gertler. 2004. “Learning from Exporting Revisited in a Less Developed Setting.” Journal of Development Economics 75(2): 397–416.Find this resource:

Bustos, P. 2011. “Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of Mercosur on Argentinian Firms.” The American Economic Review 101(1): 304–340.Find this resource:

Cassiman, B., and E. Golovko. 2011. “Innovation and Internationalization Through Exports.” Journal of International Bussiness Studies 42(1): 56–75.Find this resource:

(p. 459) Cassiman, B., E. Golovko, and E. Martínez-Ros. 2010. “Innovation, Exports and Productivity.” International Journal of Industrial Organization 28(4): 372–376.Find this resource:

Cassiman, B., and E. Martinez-Ros. 2007. “Product Innovation and Exports.” Evidence from Spanish Manufacturing, IESE Business School. https://www.researchgate.net/publication/255435821_Product_Innovation_and_ExportsFind this resource:

Castellani, D., F. Serti, and C. Tomasi. 2010. “Firms in International Trade: Importers’ and Exporters’ Heterogeneity in Italian Manufacturing Industry.” World Economy 33(3): 424–457.Find this resource:

Clerides, S. K., S. Lach, and J. R. Tybout. 1998. “Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico, and Morocco.” The Quarterly Journal of Economics 113(3): 903.Find this resource:

Criscuolo, C., J. E. Haskel, and M. J. Slaughter. 2010. “Global Engagement and the Innovation Activities of Firms.” International Journal of Industrial Organization 28(2): 191–202.Find this resource:

Damijan, J. P., and Č. Kostevc. 2015. “Learning from Trade Through Innovation.” Oxford Bulletin of Economics and Statistics 77(3): 408–436.Find this resource:

De Loecker, J. 2007. “Do Exports Generate Higher Productivity? Evidence from Slovenia.” Journal of International Economics 73(1): 69–98.Find this resource:

De Loecker, J., and P. K. Goldberg. 2014. “Firm Performance in a Global Market.” Annual Review of Economics 6(1): 201–227.Find this resource:

Delgado, M. A., J. C. Fariñas, and S. Ruano. 2002. “Firm Productivity and Export Markets: A Non-Parametric Approach.” Journal of International Economics 57(2): 397–422.Find this resource:

Fariñas, J. C., A. López, and A. Martín-Marcos. 2014. “Assessing the Impact of Domestic Outsourcing and Offshoring on Productivity at the Firm Level.” Applied Economics 46(15): 1814–1828.Find this resource:

Fariñas, J. C., and A. Martín-Marcos. 2010. “Foreign Sourcing and Productivity: Evidence at the Firm Level.” World Economy 33(3): 482–506.Find this resource:

Filipescu, D. A., S. Prashantham, A. Rialp, and J. Rialp. 2013. “Technological Innovation and Exports: Unpacking Their Reciprocal Causality.” Journal of International Marketing 21(1): 23–38.Find this resource:

Foster, L., J. Haltiwanger, and C. Syverson. 2008. “Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?” American Economic Review 98(1): 394–425.Find this resource:

Girma, S., H. Görg, and A. Hanley. 2008. “R&D and Exporting: A Comparison of British and Irish Firms.” Review of World Economics 144(4): 750–773.Find this resource:

Goldberg, P. K., A. K. Khandelwal, N. Pavcnik, and P. Topalova. 2010. “Imported Intermediate Inputs and Domestic Product Growth: Evidence from India.” The Quarterly Journal of Economics 125(4): 1727–1767.Find this resource:

Golovko, E., and G. Valentini. 2011. “Exploring the Complementarity Between Innovation and Export for SMEs’ Growth.” Journal of International Bussiness Studies 42(3): 362–380.Find this resource:

Golovko, E., and G. Valentini. 2014. “Selective Learning-by-Exporting: Firm Size and Product versus Process Innovation.” Global Strategy Journal 4(3): 161–180.Find this resource:

Griliches, Z. 1986. “Productivity, R&D, and the Basic Research at the Firm Level in the 1970’s.” American Economic Review 76(1): 141–154.Find this resource:

Halpern, L., M. Koren, and A. Szeidl. 2015. “Imported Inputs and Productivity.” American Economic Review 105(12): 3660–3703.Find this resource:

Hirsch, S., and I. Bijaoui. 1985. “R&D Intensity and Export Performance: A Micro View.” Weltwirtschaftliches Archiv 121(2): 238–251.Find this resource:

Hitt, M. A., R. E. Hoskisson, and H. Kim. 1997. “International Diversification: Effects on Innovation and Firm Performance in Product-Diversified Firms.” Academy of Management Journal 40(4): 767–798.Find this resource:

(p. 460) Kasahara, H., and B. Lapham. 2013. “Productivity and the Decision to Import and Export: Theory and Evidence.” Journal of International Economics 89(2): 297–316.Find this resource:

Kasahara, H., and J. Rodrigue. 2008. “Does the Use of Imported Intermediates Increase Productivity? Plant-Level Evidence.” Journal of Development Economics 87(1): 106–118.Find this resource:

Keller, W. 2004. “International Technology Diffusion.” Journal of Economic Literature 42(3): 752–782.Find this resource:

Kohler, W., and M. Smolka. 2012. “Global Sourcing: Evidence from Spanish Firm-Level Data.” Ch.4, p. 139–193 in Quantitative Analysis of Newly Evolving Patterns of International Trade: Fragmentation, Offshoring of Activities, and Vertical Intra-Industry Trade. World Scientific Publishing Co,. Pte. Ltd.Find this resource:

Kohler, W., and M. Smolka. 2014. “Global Sourcing and Firm Selection.” Economics Letters 124(3): 411–415.Find this resource:

Leonidou, L. C., and C. S. Katsikeas. 1996. “The Export Development Process: An Integrative Review of Empirical Models.” Journal of International Business Studies 27(3): 517–551.Find this resource:

Lileeva, A., and D. Trefler. 2010. “Improved Access to Foreign Markets Raises Plant-Level Productivity . . . For Some Plants.” The Quarterly Journal of Economics 125(3): 1051–1099.Find this resource:

Liu, X., and T. Buck. 2007. “Innovation Performance and Channels for International Technology Spillovers: Evidence from Chinese High-Tech Industries.” Research Policy 36(3): 355–366.Find this resource:

Lööf, H., and M. Andersson. 2010. “Imports, Productivity and Origin Markets: The Role of Knowledge‐Intensive Economies.” The World Economy 33(3): 458–481.Find this resource:

Lu, J. W., and P. W. Beamish. 2006. “SME Internationalization and Performance: Growth vs. Profitability.” Journal of International Entrepreneurship 4(1): 27–48.Find this resource:

MacGarvie, M. 2006. “Do Firms Learn from International Trade?” Review of Economics and Statistics 88(1): 46–60.Find this resource:

Muûls, M., and M. Pisu. 2009. “Imports and Exports at the Level of the Firm: Evidence from Belgium.” World Economy 32(5): 692–734.Find this resource:

Roper, S., and J. H. Love. 2002. “Innovation and Export Performance: Evidence from the UK and German Manufacturing Plants.” Research Policy 31(7): 1087–1102.Find this resource:

Salomon, R. 2006a. Learning from Exporting: New Insights, New Perspectives. Cheltenham, UK; Northampton, MA: Edward Elgar.Find this resource:

Salomon, R. 2006b. “Spillovers to Foreign Market Participants: Assessing the Impact of Export Strategies on Innovative Productivity.” Strategic Organization 4(2): 135–164.Find this resource:

Salomon, R., and B. Jin. 2008. “Does Knowledge Spill to Leaders or Laggards? Exploring Industry Heterogeneity in Learning by Exporting.” Journal of International Business Studies 39(1): 132–150.Find this resource:

Salomon, R., and B. Jin. 2010. “Do Leading or Lagging Firms Learn More from Exporting?” Strategic Management Journal 31(10): 1088–1113.Find this resource:

Salomon, R., and J. M. Shaver. 2005a. “Export and Domestic Sales: Their Interrelationship and Determinants.” Strategic Management Journal 26(9): 855–871.Find this resource:

Salomon, R., and J. M. Shaver. 2005b. “Learning by Exporting: New Insights from Examining Firm Innovation.” Journal of Economics & Management Strategy 14(2): 431–460.Find this resource:

Silva, A., O. Afonso, and A. P. Africano. 2012. “Learning-by-Exporting: What We Know and What We Would Like to Know.” The International Trade Journal 26(3): 255–288.Find this resource:

Tomiura, E. 2007. “Foreign Outsourcing, Exporting, and FDI: A Productivity Comparison at the Firm Level.” Journal of International Economics 72(1): 113–127.Find this resource:

(p. 461) Van Beveren, I., and H. Vandenbussche. 2010. “Product and Process Innovation and Firms’ Decision to Export.” Journal of Economic Policy Reform 13(1): 3–24.Find this resource:

Van Biesebroeck, J. 2005. “Exporting Raises Productivity in Sub-Saharan African Manufacturing Firms.” Journal of International Economics 67: 373–391.Find this resource:

Vernon, R. 1966. “International Investment and International Trade in the Product Cycle.” The Quarterly Journal of Economics 80(2): 190–207.Find this resource:

Vernon, R. 1979. “The Product Cycle Hypothesis in a New International Environment.” Oxford Bulletin of Economics and Statistics 41(4): 255–267.Find this resource:

Veugelers, R., and B. Cassiman. 2004. “Foreign Subsidiaries as a Channel of International Technology Diffusion: Some Direct Firm Level Evidence from Belgium.” European Economic Review 48(2): 455–476.Find this resource:

Vogel, A., and J. Wagner. 2010. “Higher Productivity in Importing German Manufacturing Firms: Self-Selection, Learning from Importing, or Both?” Review of World Economics 145(4): 641–665.Find this resource:

Zahra, S. A., and J. G. Covin. 1994. “Domestic and International Competitive Focus, Technology Strategy and Company Performance: An Empirical Analysis.” Technology Analysis & Strategic Management 6(1): 39–54. (p. 462) Find this resource:

Notes:

(1.) To measure performance, we use productivity calculated as the logarithm of firm value added. Value added is computed by subtracting expenditures for raw materials, consumables, and services from the firms’ sales. We use the classical production function introduced by Griliches (1986) of the form Yit+1  =  Aαt Kitγ Litλ with Y representing the firm’s output (value added), K being a firm’s physical capital, calculated as the log of firm stock of tangible assets, and L representing labor measured by the log number of employees in a given year. We take natural logarithms to obtain the linear form of the production function.