When does Innovation Matter for Exporting?

Abstract

A growing number of studies that look at the relationship between innovation and exports find that more innovation tends to allow firms to export more. But very little is known about the heterogeneous impacts of innovation on exports. Since innovation is not a costless activity, it is important to know the specific situations in which a firm most likely needs to innovate to raise its exports. Using data from Chile, we combine information on innovation activities at the firm level with a rich dataset on exports at the transaction level. We find that the firms that engage in innovation tend to export more than other firms because they are able to sell goods and target markets that reward innovation. We show that the goods and markets in which innovative exporters outperform non-innovative exporters are those where innovation can lead to substantial differences in terms of quality. Innovative firms do not have an edge in exporting goods and in targeting markets that do not reward innovation. In particular, innovative firms do not outperform non-innovative firms when exporting goods and penetrating markets in which differentiation in terms of quality is not possible or not relevant