The Role of Investments in Export Growth: Evidence of a Middle-Income Country

In this work we follow the recent strand of work linking innovation, productivity and exports. We test the hypothesis that a rise in investment favors entrance in export markets and increases exports among previously exporting firms. We address causal links through impact evaluation techniques for observational data. We examine the binary case as well as continuous treatment analysis for investment as treatment. The analysis is conducted for a panel of Uruguayan manufacturing firms for the period 1997-2008. To the best of our knowledge, this is the first study of our approach for a Latin American economy, and the relatively long time span of our data makes it possible a better characterization of new entrants and firms with changing export behavior. Also, our data appears to be richer, including information to estimate total factor productivity, and R&D and training investments, which provide better controls for confounding factors. We find evidence that investments "cause" exports and export orientation, which provides a rationale for carefully designing investment promotion policies rather than focusing on other export support policies.