Why some firms persistently out-perform others: investigating the interactions between innovation and exporting strategies

Although heterogeneity in the performance of firms is a well-established stylized fact, we still lack full understanding of its origins and the reasons why it persists. Instead of assuming that performance differences are exogenous, this article focuses on two endogenous strategies--innovation and global engagement--and interprets them as two ways to accumulate knowledge and improve firms' capabilities. We are particularly interested in analyzing interactions between these strategies and their effect on firms' performance. By using a firm-level panel dataset drawn from a Japanese large-scale administrative survey for the years 1994--2003, we first find that innovation and exporting strategies are characterized by complementarities, which define coherent productive models or patterns of learning. Second, we show that these different strategies lead to various performances in terms of productivity and survival. Third, by using a propensity score-matching approach, we show that these differences in performance are lasting. Overall, our article shows that the interaction of innovation and export investments is a source of permanent differences in performance among firms. Copyright 2010 The Author 2010. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved., Oxford University Press.