Firms’ innovation and export survival in a Crisis

Firms pay sunk costs to enter the export market. However, some firms fail to continue exporting despite paying the high sunk costs. The existing literature has not broadly explored such export market survival for firms, considering their level of innovation. Thus, this study investigates the effects of innovation on firms’ export market survival, using a panel dataset of South Korean manufacturing firms from 2006 to 2019. Adopting a discrete-time hazard model, this study uses patents for measuring innovation and considers the financial crisis period. The study finds that firms with higher innovation levels have lower hazard rates in the export market, implying a higher survival rate. Furthermore, a nonlinear relationship between innovation and export market survival demonstrates diminishing returns to innovation. Innovation is critical to firms’ export market survival, especially during the global financial crisis. Particularly, innovation during the global financial crisis helps high–medium technology firms survive in the export market. These empirical findings suggest that innovation is likely to increase the competitiveness of firms’ products and support their survival in the export market, even during the crisis period.