No 2017/16 Export innovation

The role of new imported inputs and multinationality

Abstract

This paper focuses on the determinants of export innovation, that is innovation in a firm’s export product portfolio. We argue that this novel measure is an important proxy of the overall competitiveness of exporters. We identify two main factors that contribute to the introduction of export innovations at the firm level: importing new inputs and being part of a multinational group. Based on a sample of more than 14,000 Swedish manufacturing firms over the period 2001-2012, we show that importing new inputs is a key determinant of innovation in exported products, even after controlling for multinationality and a number of other firm characteristics. The effect of new imports is particularly strong for small firms and is mainly due to the import of new intermediate inputs. Being part of a multinational group has instead an ambivalent effect on export innovations of Swedish firms: while small firms acquired by foreign MNEs show a short term reduction in export innovation, this is not true for large firms, which instead increase their export innovation when they establish subsidiaries abroad or become part of a Swedish-owned multinational group.