R&D Expenditures and Geographical Sales Diversification

25 Pages Posted: 25 Feb 2016

See all articles by Christopher F. Baum

Christopher F. Baum

Boston College - Department of Economics

Mustafa Caglayan

Heriot-Watt University - School of Management and Languages

Oleksandr Talavera

Swansea University - School of Management

Date Written: March 2016

Abstract

This paper empirically examines the role of diversification in export markets on firm‐level R&D activities taking account of the potential endogeneity in this relationship. We show that geographical sales diversification across different regions of the world induces UK firms to increase their R&D expenditures, as firms must innovate and develop new products to maintain a competitive edge over their rivals. This finding is robust to a battery of sensitivity checks. Furthermore, we find that R&D expenditures cause higher export sales but do not cause export sales diversification. Hence, the result that diversification causes higher R&D activity is not driven by reverse causality.

Suggested Citation

Baum, Christopher (Kit) F. and Caglayan, Mustafa and Talavera, Oleksandr, R&D Expenditures and Geographical Sales Diversification (March 2016). The Manchester School, Vol. 84, Issue 2, pp. 197-221, 2016, Available at SSRN: https://ssrn.com/abstract=2737644 or http://dx.doi.org/10.1111/manc.12092

Christopher (Kit) F. Baum (Contact Author)

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
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Mustafa Caglayan

Heriot-Watt University - School of Management and Languages ( email )

Edinburgh EH14 4AS, Scotland
United Kingdom

Oleksandr Talavera

Swansea University - School of Management ( email )

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Singleton Park
Swansea, SA2 8PP
United Kingdom

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