Exports and Innovation in Emerging Economies : Firm-Level Evidence from South-Africa

Using a new dataset on the innovation and exports of 500 South African firms, this paper asks whether exports affect rm innovation in the context of an emerging economy. We use a range of particularly attractive features of the dataset. Firms not only report whether they innovated but describe their innovation - which reduces measurement error - and provide extensive information on their other links with foreign countries or firms. We conrm that product innovation is strongly associated with exports, even though other measures of innovation are not (e.g. process innovation). Exporters typically report very different reasons to innovate than non-exporters, which suggests that exporting provides additional incentives to innovate, and that the causality runs at least partly from exporting to innovating. Instrumenting the export status of a firm using its distance from the nearest port or airport, we however do not find any statistically signicant relationship between exports and innovation in the second stage. We conclude that, even though exports seem to causally raise innovation through some channels, the quantitative effects appear too weak to be captured by an instrument that is not extremely powerful.