Innovation and exports: different markets, different outcomes

Abstract

Purpose The purpose of this paper is to identify different outcomes in the relation innovation–exports for a firm located in a developing country, depending upon the destination market of its exports (i.e. a developed or a developing economy). Design/methodology/approach The specification strategy is a bivariate probit regression model applied to 640 Uruguayan manufacturing firms. Two simultaneous equations are used to estimate the probability of being an exporting or innovating firm. For both equations, the firm’s innovative activity and export status in the past are introduced as explanatory variables to solve endogeneity issues. Findings When firms located in a developing economy export to another developing country, the authors find that innovation precedes exports, in line with what they would expect according to theory. When the export market is a developed economy, firms are not able to cope with both innovation and export strategies simultaneously, whether innovating to access export markets or transforming knowledge from exports into innovation. Research limitations/implications Causality could not be found and endogeneity problems were not solved. The data are limited to a sample of Uruguayan manufacturing firms during six years between 2010 and 2015, and authors do not know when did the firms began to export either to a developed or a developing economy. Furthermore, the database indicates if a developed economy is between the three main export markets of the firm or not, but authors do not know what kind of products (i.e. their technological level) are exported by the firm to that destination. Originality/value Although the link between innovation and exports is an important topic for firms and policymakers, the main bulk of empirical studies has ignored the role of destination markets. This study attempts to fill this gap contributing to a better understanding of the differences in the relation between innovation and exports (i.e. its sequence), when the destination market is a developed or a developing economy.