Firm R&D Investment and Export Market Exposure

Economics

Further details

In this paper we estimate a dynamic structural model of a firm’s decision to invest in R&D and use it to measure the expected long-run benefit from R&D investment.  We apply the model to German firms in five high-tech manufacturing industries and distinguish firms by whether they sell in only the domestic market or also export some of their production.  We find that R&D investment leads to a higher rate of product and process innovation among exporting firms and these innovations have a larger impact on productivity improvement in export market sales. As a result, exporting firms have a higher payoff from R&D investment, invest in R&D more frequently than firms that only sell in the domestic market, and, subsequently, have higher rates of productivity growth. The endogenous investment in R&D is an important mechanism that leads to a divergence in the long-run performance of firms that differ in their export market exposure.

A copy of the paper can be found here: www.dropbox.com/s/bbtrbyuimouffsq/VUONG%20export_prv_feb26_vav.pdf