| Abstract: |
This paper discusses the interplay between exports and innovation and both
their effects on economic performance. The European Union makes major efforts
to improve the innovation performance of its companies with the aim to improve
the global competitive position of the Union and create jobs and wealth. Firms
that are involved in international activities through exports or foreign
direct investment are typically top performers in terms of their capability to
generate value added as well as employment and productivity (see e.g. Mayer
and Ottaviano 2007). From the policy point of view this implies that more of
Europe's innovative companies should compete and be competitive on global
markets and create revenue and jobs at home. However, the relationship between
innovation, exporting and economic performance is by no means unidirectional.
It is difficult to show whether superior export performance is determined by a
superior innovation performance, or whether internationalisation supports
innovation. The major issue here is to control for endogeneity between these
two dimensions. Exporting might positively affect innovation via learning
effects, resource effects and / or incentive effects. On the other hand,
innovation improves productivity and therefore increases a company's
competitiveness such that it selects itself into the export market.
Alternatively, product innovations might also create (temporary) monopolies in
niche markets. Testing these issues emerging from the literature we use firm
level data from the 3rd European Community Innovation Survey (CIS3) for 21
countries for the years 1998-2000 accessed at the Eurostat Safe Centre in
Luxemburg. In order to overcome problems referring to endogeneity, we
empirically investigate the effects of exporting in the first year of the
observed time frame on innovation input, while we explain in a second model
exports in the final observed year by innovation output indicators. We find
strong evidence that innovation improves the export performance of companies,
whereas this pattern varies with the stage of economic development. While
firms in highly innovative sectors in the more advanced member states need
high degrees of appropriability, i.e. the possibility to protect their
innovations, and have to continuously improve their knowledge base to
participate in export markets, it is productivity and price-based
competitiveness for low innovation-intensive sectors. This reflects the
alternative patterns of niche markets on one hand, and self-selection on the
other, that allow firms to export. While the nature of the data does not allow
us to draw satisfactory conclusions on the causal link between exports and
innovation, we could find positive effects of exporting on innovation
activities only for small companies, while large companies are not more likely
to innovate when they are exporting. We therefore conclude that the positive
impact of exports results from additional financial resources available for
exporting SMEs, while learning effects are comparably small. However, we only
investigated exports but did not consider different kinds of
internationalisation due to data constraints. The picture might change in this
case. Finally, we argue that both innovation and exports have positive effects
on a firm's economic performance. We find strong evidence that innovation is
an important driver for productivity growth, whereas the positive effect
increases when a company (and the country the firm is located in) approaches
the technology frontier. Furthermore, our results indicate that in the medium
to low innovation intensive sectors productivity growth is mainly driven by
process innovations, while in high-technology sectors in the more advanced
member states productivity growth is strongly driven by product innovations.
This is in line with the idea that in high-tech niche markets it is product
quality which leads to higher prices. Competition in these markets is not
based on prices but on product quality. In the low-technology sectors,
competition is mainly based on prices and therefore process innovation plays a
decisive role. In addition, we also find evidence that the effects of
innovation and exporting on employment and turnover growth follow patterns
that are dependent of the stage of technological development. The impact of
exports on employment growth increases with an increasing distance of the
company's home country from the technological frontier. Companies in these
countries have a comparative advantage in wage levels. Interestingly,
exporting has positive effects on labour productivity mainly in highly
innovation-intensive sectors in the more advanced countries on the one hand,
and in less innovation-intensive sectors in countries that are further away
from the technological frontier. Probably, this result reflects comparative
advantages and volume effects (economies of scale) of exporting. The prior
companies increase their export share by increased competitiveness based on
high-quality products, the latter based on wage levels. Finally, the joint
effects of exporting and innovation on turnover growth and therefore also
productivity growth are positive for high-tech sectors in technologically
advanced countries. This indicates that companies that are active in these
sectors have to internationalise their economic activities to reap the
benefits from their innovation efforts. Domestic markets tend to be too small
and niche. This result claims for supporting innovative companies in these
sectors to start exporting. See above See above |