Does Innovation Affect Intensive and Extensive Margins of Exports? A Firm-Level Analysis

In the progressively globalized world, firms and nations are ceaselessly endeavoring for competitiveness in international market to increase their export earnings. This study is intended to investigate the effects of different types of innovation - product, process, management and marketing - on margins of exports by using data of manufacturing firms operating in four South Asian countries. The study is based on a simple theoretical model that successfully predicts the effects of innovation on extensive and intensive margins of exports and guides our empirical analyses. We use the probit, fractional response model, and control function approach for endogenous treatment as estimation strategies. The findings of the study uncover that different types of innovation have positive and significant effects on both extensive and intensive margins of exports. Our results are robust to alternative specifications and estimation techniques. These findings suggest that different innovative activities - product, process, management, and marketing innovation - provide a sustainable, competitive advantage for firms in international market.