The Effects of Internationalization on Innovation: Firm-Level Evidence for Transition Economies

Abstract

It is well-documented that international enterprises are more productive. Only few studies have explored the effect of internationalization on productivity and innovation at the firm-level. Using propensity score matching we analyze the causal effects of internationalization on innovation in 10 transition economies. We distinguish between three types of internationalization: exporting, FDI, and international outsourcing. We find that internationalization causes higher levels of innovation. More specifically, we show that (i) exporting results in more R&D, higher sales from product innovation, and an increase in the number of international patents (ii) outward FDI increases R&D and international patents (iii) international outsourcing leads to higher sales from product innovation. The paper provides empirical support to the theoretical literature on heterogeneous firms in international trade that argues that middle income countries gain from trade liberalization through increases in firm productivity and innovative capabilities.

The role of firm-level factors and regional innovation capabilities for Polish SMEs

“…At the same time, start-ups are perceived as an important group of innovators); • ownership (foreign ownership gives more opportunities to innovate); • internationalization (exports support innovations as fixed costs may be spread among a larger number of clients. Moreover, exporters meet more competition so are more prone to innovate in order to create competitive advantage) -see Boermans and Roelfsema (2012); • R&D spending -R&D investments are positively correlated with innovations, especially in high-tech manufacturing (see Griffith, Huergo, Mairesse, & Peters, 2006;Van Leeuwen & Klomp, 2006;Raffo, Lhuillery, & Miotti, 2008;Masso & Vahter, 2008, for studies based on CIS data); • the availability of skilled human resources -having qualified personnel is crucial not only for creating innovations but also for the adoption of those which are already on the market (see Rodriguez-Pose & Comptour, 2012); • ICT utilization -broader ICT usage in enterprises increases the probability that innovations will be introduced (see Polder, Van Leeuwen, Mohnen, & Raymond, 2009;Hall, Lotti, & Mairesse, 2013;Nguyen Thi & Martin, 2015;Arendt & Grabowski, 2018); • the business environment (strong rule of law, low taxation, and reduced bureaucracy are perceived as innovation drivers).…”

Strengthening innovation in Poland

“…Boermans and Roelfsema (2015) show with data from Central and Eastern European countries that outsourcing is connected to product innovation, whereas exporting and FDI are associated with higher R&D spending and more patenting. Similar results have been found in other regions.…”

Internationalization and product innovation in ASEAN: The moderating role of organizational innovation

“…To partially address the endogeneity concern, we employ the propensity score matching (PSM) technique (Boermans & Roelfsema, 2015; Lee, Park, & Bae, 2017; Roberts & Whited, 2013; Rosenbaum & Rubin, 1983). PSM concerns “pairing treatment and comparison units that are similar in terms of their observable characteristics” (Dehejia & Wahba, 2002) to correct for sample selection bias resulting from observable differences between “treatment” group and “control” one (Boermans & Roelfsema, 2015; Lee et al, 2017). In this study, using PSM, we construct the “treatment” group including firms that conducted internationalization, organizational innovation, and joint adoption of these activities and the “control” group including those without these activities.…”

“…Finally, although the PSM method is used to account for the endogeneity problem to some extent, it is clear that this technique does not address the endogeneity concern completely (Boermans & Roelfsema, 2015; Roberts & Whited, 2013). Due to data limitation, our current econometric investigation cannot take into account this issue more comprehensively.…”