The dynamic linkages among exports, R&D and productivity

Abstract

This paper estimates a dynamic model of a firm's decision to export and invest in R&D, in which we allow past export and R&D experience to endogenously affect productivity. In our empirical strategy, we proceed in two steps: in the first step, using as starting point the traditional control approach method to estimate total factor productivity, we consider a more general process driving the law of motion of productivity in which we recognise the potential role that export and R&D experience might have in shaping future firms' productivity, and test whether this assumption holds; in the second step, we estimate a bivariate dynamic model of the firm's decision to invest in R&D and export, in which we analyse the linkages among investing in R&D, exporting and productivity. Using a representative sample of Spanish manufacturing firms for the period 1990-2009, we find that both export and R&D positively affect future productivity, which will drive more firms to self-select in those activities.