New Stuff or Better Ways: What Matters to Survive International Markets?

Innovation and export decisions are closely interlinked. Both activities contribute to firm performance in various ways: exporting provides a wider market to sell products, while innovation provides new and better products to supply those markets and/or more efficient ways to reduce costs. The connection of innovation and exporting is of major interest to developing countries aiming to achieve higher growth and wellbeing given foreign markets are both a new challenge and a source of knowledge for firms. This study analyzes how different types of innovation affect export behavior at the firm level, as well as the consequence of exporting on further innovation activities. We use an unbalanced panel of Uruguayan manufacturing firms which provides information from 2000 to 2012. We use logistic regression and matching with difference-in-differences techniques. Using LOGIT models, we find that previous innovation increases the probability of exporting. Unlike other studies, productivity-enhancing (or cost-reducing) innovation shows a stronger correlation than product innovation. However, using Matching and Difference-in-Differences we were not able to establish a causality link from innovation to exporting. We find no consistent evidence of an impact of previous exports on innovation activities.