Causal Link between Exporting and Innovation Activity. Evidence from Slovenian Firms
In this paper we investigate the causal relationship between firm's innovation and exporting activity by using detailed firm-level data on innovation activity, financial variables and information on trade for Slovenian firms in 1996-2002. We employ the bivariate probit regression on a system of innovation and exporting equations as well as matching procedures to tease out the direction of causality between exporting status and innovation activity. Our results suggest a strong positive relationship between exporting and innovation activity in both directions, while results on the impacts of lagged export (or innovation) status on the probability to start innovat- ing (or exporting) are less conclusive. In other words, whereby innovating status increases the probability of exporting it does not increase the probability of becom- ing a first time exporter, and vice versa. The results remain unaltered also after allowing for discrimination between product and process innovation.
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