R&D Investment, Exporting, and Productivity Dynamics

35 Pages Posted: 25 Jan 2009 Last revised: 29 Oct 2014

See all articles by Bee Yan Aw

Bee Yan Aw

Pennsylvania State University

Mark J. Roberts

Pennsylvania State University - College of the Liberal Arts - Department of Economics; National Bureau of Economic Research (NBER)

Daniel Xu

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: January 2009

Abstract

A positive correlation between productivity and export market participation has been well documented in producer micro data. Recent empirical studies and theoretical analyses have emphasized that this may reflect the producer's other investment activities, particularly investments in R&D or new technology, that both raise productivity and increase the payoff to exporting. In this paper we develop a dynamic structural model of a producer's decision to invest in R&D and participate in the export market. The investment decisions depend on the expected future profitability and the fixed and sunk costs incurred with each activity. We estimate the model using plant-level data from the Taiwanese electronics industry and find a complex set of interactions between R&D, exporting, and productivity. The self- selection of high productivity plants is the dominant channel driving participation in the export market and R&D investment. Both R&D and exporting have a positive direct effect on the plant's future productivity which reinforces the selection effect. When modeled as discrete decisions, the productivity effect of R&D is larger, but, because of its higher cost, is undertaken by fewer plants than exporting. The impact of each activity on the net returns to the other are quantitatively unimportant. In model simulations, the endogenous choice of R&D and exporting generates average productivity that is 22.0 percent higher after 10 years than an environment where productivity evolution is not affected by plant investments.

Suggested Citation

Roberts, Bee Yan and Roberts, Mark J. and Xu, Daniel, R&D Investment, Exporting, and Productivity Dynamics (January 2009). NBER Working Paper No. w14670. Available at SSRN: https://ssrn.com/abstract=1332609

Bee Yan Roberts

Pennsylvania State University ( email )

501 Kern Building
University Park, PA 16802-3306
United States
814-863-1996 (Phone)
814-863-4775 (Fax)

HOME PAGE: http://econ.la.psu.edu/Biography_Pages/VITA.0901.pdf

Mark J. Roberts (Contact Author)

Pennsylvania State University - College of the Liberal Arts - Department of Economics ( email )

513 Kern Graduate Building
University Park, PA 16802-3306
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Daniel Xu

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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