TY - JOUR
T1 - Firm R&D investment and export market exposure
AU - Peters, Bettina
AU - Roberts, Mark J.
AU - Vuong, Van Anh
N1 - Funding Information:
We are grateful to Pere Arque-Castells, Bronwyn Hall, Eric Bartelsman, Jordi Jaumandreu, Hans Lööf, Florin Maican, Jacques Mairesse, Marc Melitz, Pierre Mohnen, Matilda Orth, Stephen Redding, Jo Van Biesebroeck, Daniel Xu, Stephen Yeaple, and Hongsong Zhang for helpful comments and discussions. We thank the ZEW – Leibniz Centre for European Economic Research for providing data access and research support. Any errors are those of the authors.
Publisher Copyright:
© 2022 Elsevier B.V.
PY - 2022/12
Y1 - 2022/12
N2 - 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.
AB - 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.
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U2 - 10.1016/j.respol.2022.104601
DO - 10.1016/j.respol.2022.104601
M3 - Article
AN - SCOPUS:85136123633
SN - 0048-7333
VL - 51
JO - Research Policy
JF - Research Policy
IS - 10
M1 - 104601
ER -