Firm R&D Investment and Export Market Exposure

45 Pages Posted: 27 Nov 2018 Last revised: 9 Jan 2019

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 1, 2018

Abstract

In this article we study differences in the returns to R&D investment between firms that sell in international markets and firms that only sell in the domestic market. We use German firm-level data from the high-tech manufacturing sector to 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 firms that only sell in the domestic market, and, subsequently, have higher rates of productivity growth. The endogenous investment in R&D is an important mechanism that leads to a divergence in the long-run performance of firms that differ in their export market exposure. Simulating the introduction of trade tariffs we find a substantial reduction in firms' productivity growth and incentive to invest in R&D.

Keywords: R&D choice, Export, Innovation, Productivity, Dynamic structural model

JEL Classification: F14, L25, O31, O32

Suggested Citation

Peters, Bettina and Roberts, Mark J. and Vuong, Van Anh, Firm R&D Investment and Export Market Exposure (November 1, 2018). ZEW - Centre for European Economic Research Discussion Paper No. 18-047. Available at SSRN: https://ssrn.com/abstract=3289091 or http://dx.doi.org/10.2139/ssrn.3289091

Bettina Peters (Contact Author)

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany
+496211235174 (Phone)
+496211235170 (Fax)

HOME PAGE: http://www.zew.de

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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