Evidence from Spanish Manufacturing

Firm decisions affect performance and survival. Unfortunately, due to severe selection problems it is hard to study this causality. Export decisions, however, have been related to better performing firms, where causality seems to run from good performance to entering export markets. Using the fact that we observe both exporting and non-exporting firms we analyze the effect of innovation on the decision of firms to export. We find for a panel of Spanish manufacturing firms for the period 1990-1999 that product innovation is a very important driver of exports for small non-exporting firms. Our results suggest that product innovation rather than process innovation affects firm productivity, which in turn induces firms to select into the export market.