Exporting status and success in innovation: Evidence from Community Innovation Survey micro data for EU countries Jože Damijan Črt Kostevc Matija Rojec

Institure for Economic Research, Ljubljana, Slovenia Outline Motivation Motivation Key findings Key findings Data Data Estimation strategy Estimation strategy Results Results Where to go from here? Where to go from here? Milano, February

Institure for Economic Research, Ljubljana, Slovenia Motivation Growing body of empirical literature that looks at the nexus of trade and innovation activity at the firm level; Growing body of empirical literature that looks at the nexus of trade and innovation activity at the firm level; Both directions of causality received some empirical support Both directions of causality received some empirical support innovation improves exporting performance (Wagner, 1996; Wakelin, 1997, 1998; Ebling and Janz, 1999; Aw et al., 2005, 2009; Girma et al., 2007); innovation improves exporting performance (Wagner, 1996; Wakelin, 1997, 1998; Ebling and Janz, 1999; Aw et al., 2005, 2009; Girma et al., 2007); Firms learn to innovate from being present in exporting markets Bratti and Felice (2012), Ghazalian (2012), Damijan, Kostevc, Polanec (2010); Firms learn to innovate from being present in exporting markets Bratti and Felice (2012), Ghazalian (2012), Damijan, Kostevc, Polanec (2010); Milano, February

Institure for Economic Research, Ljubljana, Slovenia Motivation Policy implications are important (stimulate exports to generate innovation or subsidise R&D to improve export participation) Policy implications are important (stimulate exports to generate innovation or subsidise R&D to improve export participation) Milano, February

Institure for Economic Research, Ljubljana, Slovenia Key findings systematically positive relationship between export status and successful innovation (strong effect for product innovation, weak for organisational); systematically positive relationship between export status and successful innovation (strong effect for product innovation, weak for organisational); the impact of exporting is robust to the definition of innovation, i.e. new-to-firm versus new-to-market innovation; the impact of exporting is robust to the definition of innovation, i.e. new-to-firm versus new-to-market innovation; while innovation success is, in general, increasing in firm size, we find consistent evidence that exporting performance exerts the strongest effects on innovation in medium-sized firms; while innovation success is, in general, increasing in firm size, we find consistent evidence that exporting performance exerts the strongest effects on innovation in medium-sized firms; 6

Milano, February 2013 Institure for Economic Research, Ljubljana, Slovenia Key findings (continued) we find that the effects of export status, size and market concentration on firms’ innovation performance in the new EU member states to be substantially smaller we find that the effects of export status, size and market concentration on firms’ innovation performance in the new EU member states to be substantially smaller The effect of FDI on innovation, on the other hand, is larger The effect of FDI on innovation, on the other hand, is larger 7

Milano, February 2013 Institure for Economic Research, Ljubljana, Slovenia Data Firm-level data on four most recently available waves of Community Innovation Survey (CIS) data: CIS III, CIS IV, CIS 2006 and CIS 2008; Firm-level data on four most recently available waves of Community Innovation Survey (CIS) data: CIS III, CIS IV, CIS 2006 and CIS 2008; Between 14 and 16 countries surveyed, primarily from CEEC, but also includes EU-15 countries and several non-EU countries; Between 14 and 16 countries surveyed, primarily from CEEC, but also includes EU-15 countries and several non-EU countries; Data have been annonymized preventing the construction of a panel dataset and leads to other estimation issues; Data have been annonymized preventing the construction of a panel dataset and leads to other estimation issues; 8

Milano, February 2013 Institure for Economic Research, Ljubljana, Slovenia Data Table 1: CIS sample construction 9

Milano, February 2013 Institure for Economic Research, Ljubljana, Slovenia Data Table 2: Overview of data characteristics 10

Milano, February 2013 Institure for Economic Research, Ljubljana, Slovenia Data Table 3: Overview of data characteristics wrt size class 11

Milano, February 2013 Institure for Economic Research, Ljubljana, Slovenia Estimation We look at the effect of exporting status on different aspects of innovative activity. We look at the effect of exporting status on different aspects of innovative activity. Employ the following general econometric specification: Employ the following general econometric specification: where we control for firm size, market power, for. ownership, absorbtive capacity, in-house and external R&D expenditure, information and co-operation on innovation activities. where we control for firm size, market power, for. ownership, absorbtive capacity, in-house and external R&D expenditure, information and co-operation on innovation activities. 12

Milano, February 2013 Institure for Economic Research, Ljubljana, Slovenia Estimation issues Data quality Data quality Factor analysis to extract eigenvalues for sources of innovation information (1) and co-operation (2) Factor analysis to extract eigenvalues for sources of innovation information (1) and co-operation (2) Endogeneity (2-stage IV) Endogeneity (2-stage IV) 13

Results Baseline (probit) on the complete sample Baseline (probit) on the complete sample New-to-market innovations only New-to-market innovations only Allowing coefficients to vary with size classes Allowing coefficients to vary with size classes CEEC versus rest of EU CEEC versus rest of EU Milano, February 2013 Institure for Economic Research, Ljubljana, Slovenia 14

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Results recap Strong correlation between exporting status and success in innovation; Strong correlation between exporting status and success in innovation; The relationship is particularly strong in case of product innovations and in part marketing innovation; The relationship is particularly strong in case of product innovations and in part marketing innovation; Size and foreign ownership matter; Size and foreign ownership matter; In the most general specification R&D has (a quantitatively small) negative effect on the probability to innovate. The effect disappears when new-to-market products are considered; In the most general specification R&D has (a quantitatively small) negative effect on the probability to innovate. The effect disappears when new-to-market products are considered; Market concentration in general leads to less innovation Market concentration in general leads to less innovation Milano, February 2013 Institure for Economic Research, Ljubljana, Slovenia 19

Results recap (…continued) Medium sized firms ( employees) appear to benefit most from exporting status; Medium sized firms ( employees) appear to benefit most from exporting status; Most effects appear weaker for CEEC countries with exception of the impact of foreign ownership which, for all but product innovations, is significantly stronger than in the remainder of the sample; Most effects appear weaker for CEEC countries with exception of the impact of foreign ownership which, for all but product innovations, is significantly stronger than in the remainder of the sample; IV estimation (not shown) supports the link between exporting and innovation status IV estimation (not shown) supports the link between exporting and innovation status Milano, February 2013 Institure for Economic Research, Ljubljana, Slovenia 20

To-dos Explore data on cooperation and sources of information further; Explore data on cooperation and sources of information further; Further robustness tests; Further robustness tests; Explain the cross-country differences (sampling, country- characteristics,…) Explain the cross-country differences (sampling, country- characteristics,…) Explore information on R&D subsidies and shares of revenue due to innovation Explore information on R&D subsidies and shares of revenue due to innovation Milano, February 2013 Institure for Economic Research, Ljubljana, Slovenia 21