Firm R&D investment and export market exposure

Bettina Peters (), Mark Roberts and Van Anh Vuong

Research Policy, 2022, vol. 51, issue 10

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 discrete 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 higher rates of product and process innovation among exporting firms and these innovations have a larger economic return in export market sales than domestic market sales. As a result of this higher payoff to R&D investment, exporting firms invest in R&D more frequently than domestic firms, and this endogenously generates 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 20 % export tariff reduces the long-run payoff to R&D by 24.2 to 46.9 % for the median firm across the five industries. Overall, export market sales contribute significantly to the firm's return on R&D investment which, in turn, raises future firm value, providing a source of dynamic gains from trade.

Keywords: R&D choice; Exporting; Innovation rate; Return to R&D; Productivity (search for similar items in EconPapers)
JEL-codes: F14 O31 O32 O33 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Firm R&D Investment and Export Market Exposure (2018)
Working Paper: Firm R&D Investment and Export Market Exposure (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:respol:v:51:y:2022:i:10:s004873332200124x

DOI: 10.1016/j.respol.2022.104601

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