From Innovation to Exporting or Vice Versa?

Firm productivity and export decisions are closely related to innovation activity. Innovation may play a more important role in the decision to start exporting, and successful exporting may drive process innovation. This suggests that the causality between innovation and exporting may run in both directions. Using detailed microdata from innovation surveys, industrial production surveys, and trade information for Slovenian firms in 1996-2002, we investigate the bidirectional causal relationship between firm innovation and export activity. We find no evidence for the hypothesis that either product or process innovations increase the probability of becoming a first-time exporter, but we do find evidence in both the innovation survey and the industrial production survey that exporting leads to productivity improvements. These, however, are likely to be related to process rather than product innovations, and are observed only in a sample of medium and large first-time exporters. This finding makes a case in favour of the learning-by-exporting hypothesis by demonstrating that these learning effects from exporting occur through the mechanism of process innovation enhancing firm technical efficiency.