Firm R&D Investment and Export Market Exposure

48 Pages Posted: 5 Nov 2018 Last revised: 7 Jun 2021

See all articles by Bettina Peters

Bettina Peters

Center for European Economic Research (ZEW)

Mark J. Roberts

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

Van Anh Vuong

University of Cologne

Date Written: November 2018

Abstract

We study differences in the returns to R&D investment between German manufacturing firms that sell in international markets and firms that only sell in the domestic market. Using firm-level data for five high-tech manufacturing sectors, we estimate a dynamic structural model of a firm's decision to invest in R&D and use it to measure the difference in expected long-run benefit from R&D investment for exporting and domestic firms. The results show that R&D investment leads to a higher rate of product and process innovation among exporting firms and these innovations have a larger impact on productivity improvement in export market sales. As a result, exporting firms have a higher payoff from R&D investment, invest in R&D more frequently than domestic firms and, subsequently, have higher rates of productivity growth. We use the model to simulate the introduction of export and import tariffs on German exporters, and find that a twenty-percent export tariff reduces the long-run payoff to R&D by 24.2 to 46.9 percent for the median firm across the five industries. Overall, export market participation contributes significantly to the firm's return on R&D investment, which in turn, raises long run productivity and firm value providing a source of dynamic gains from trade.

Suggested Citation

Peters, Bettina and Roberts, Mark J. and Vuong, Van Anh, Firm R&D Investment and Export Market Exposure (November 2018). NBER Working Paper No. w25228, Available at SSRN: https://ssrn.com/abstract=3278528

Bettina Peters (Contact Author)

Center for European Economic Research (ZEW) ( email )

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Mark J. Roberts

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

Van Anh Vuong

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

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