Do Firms Learn more from Exporting to the Developed Markets? Empirical Evidence of Indian Firms

The hypothesis of learning-by-exporting hinges largely based on the argument that the exporters are exposed to knowledge and technology to foreign markets and they learn and become more productive and innovative. However, firms from developing countries not only export to industrialized economies but also to less developed countries. The natural questions arises that what if a firm from developing countries directs its exports to a country at a similar or lower level of technological developed. Would there still be productivity gains to be made? We attempt to test the effects of destination of exports on firms’ productivity and innovation for a sample of the Indian manufacturing firms. Our findings indicate that a positive learning effect is flowing from developed countries to productivity and innovation of the Indian firms. However, in the case of exporting to developing countries including China, we find weak or negative effects. Furthermore, our results also suggest that in-house R&D and foreign technology enhances the absorption capacity of firms, which in turn help firms in learning and gaining through exporting to technologically advanced countries.