Learning from Trade through Innovation
| DOI | http://doi.org/10.1111/obes.12071 |
| Published date | 01 June 2015 |
| Date | 01 June 2015 |
| Author | Jože P. Damijan,Črt Kostevc |
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©2014 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd.
OXFORD BULLETIN OF ECONOMICSAND STATISTICS, 77, 3 (2015) 0305–9049
doi: 10.1111/obes.12071
Learning fromTrade through Innovation*
Joˇ
ze P. Damijan†,ˇ
Crt Kostevc‡
†Institute for Economic Research, University of Ljubljana, VIVES and Licos at KU Leuven,
Kardeljeva ploscad 17,1000 Ljubljana, Slovenia (joze.damijan@ef.uni-lj.si)
‡Institute for Economic Research, University of Ljubljana, Kardeljeva ploscad 17,1000
Ljubljana, Slovenia (e-mail: crt.kostevc@ef.uni-lj.si)
Abstract
This paper explores the idea that firms learn from trade by introducing either new products
or processes influenced by their trade links with foreign markets. By exploring microdata
for Spain, including data on innovation and trade, we find a robust relationship between
imports, exports and innovation.The results suggest that fir ms learn primarily from import
links, which enable them to innovateand to ‘dress up’ for starting to export.This sequencing
between trade and innovation, however, is shown to be more pronounced for small firms
only and technologically advanced firms.
I. Introduction
Recent studies dealing with the impact of trade on firm performance have found it difficult
to provide conclusive evidence of learning-by-trading, i.e. how firms’ participation in
international trade impacts their performance. One reason for this may be that the litera-
ture, by and large, is focusing solely on exporting activities and their impact on measures
of firm productivity. Micro-level studies dealing with the impact of firms’ imports on their
performance are far scarcer in comparison.1There are some exceptions, though, as Amiti
and Konings (2007) study the effects of import liberalization on productivity using plant-
level information on imports of Indonesian firms both through tougher import competition
as well as through access to cheaper intermediate inputs. They show that access to cheaper
intermediate goods might have as much as ten times greater impact on firm productiv-
ity gains than increased import competition. Similarly, Altomonte and B´ek´es (2010) and
Halpern, Koren and Szeidl (2011) show superior effects of importing relative to exporting
for firm performance in Hungary. Bas and Strauss-Kahn (2010) for France and Goldberg
*This paper was produced in the framework of MICRO-DYN (http://www.micro-dyn.eu/), an international eco-
nomic research project focusing on the competitiveness of firms, regions and industries in the knowledge-based
economy.The project is funded by the EU Sixth Framework Programme (http://www.cordis.lu/). This publication
reflects onlythe author’s views,the European Commission is not liable for any use that may be made of the information
contained therein.
JEL Classification numbers: D24, F14, F21.
1Imports, considered at the aggregate level of countries or industries, are studied primarily as a source of increased
competition in the local markets forcing firms to adjust to growing competitive pressures (see for instance Bloom
et al., 2011; Iacovone et al., 2013).
Learning from trade through innovation 409
et al. (2011) for India find a significant impact of higher diversification and increased num-
ber of imported input varieties on firm productivity.Damijan, Konings and Polanec (2014)
show that churning in imported input varieties is of utmost importance for Slovenian firms’
productivity growth and even more for innovations in their export product scope.
Another reason for missing evidence on firms’ learning effectsfrom trade may lie in the
way these effects have so far been measured. Aw, Roberts and Winston (2005) arguethat a
number of studies that failed to find evidence of learning-by-exporting may haveneglected
a potentially important element of the process of productivity change: the investments
made by firms to absorb and assimilate knowledge and expertise from foreign contacts.
This means that both importing as well as exporting activities may help firms become more
innovativein ter ms of their production processes or products, whichcould, in tur n, impact
productivity growth and/or firm survival in the long run.
In this paper, we argue that, consistent with Damijan, Kostevc and Polanec (2010),
learning from trade is associated with firm innovation activity and need not translate in
to immediate total factor productivity improvements. In addition, we propose that there
is a clear sequencing between various forms of trade links and firm’s innovation activity.
Instead of using productivity as a measure of learning from trading and selection into
trade, we analyze firm’s learning from or in preparation for trade through the dynamics
of export and import participation as well as introduction of new products or processes.
Specifically, the paper studies the sequencing of firm’s learning from trade and innovation
– from firm’s engagement in imports or exports to its decision to start product or process
innovations.Firms with extensive importing links are more likely to introduce new products
or processes, which helps them to ‘dress up’in terms of productivity in anticipation of future
exporting. Exporting, in turn, further boosts additional product and process innovations.
All of these activities could ultimately translate into ongoing productivity improvements
for the firm. While we focus primarily on finding evidence of the effects of learning from
trade, we also shed new light on self-selection into trade and innovation, in particular
conscious self-selection (Alvarez and Lopez, 2005; Iacovone and Javorcik, 2012).
Our empirical approach finds its theoretical underpinning in the series of models that
assume firms are heterogeneous with respect to productivity and self-select not only into
trade (exporting and/or importing status), but also into investing in productivity-enhancing
technology (Navas-Ruiz and Sala, 2007; Bas, 2012; Bustos, 2011). While these models
consider the relationship between the choice of whether or not to trade and the decision to
invest in new technologies, they do not analyze the temporal dynamics of these decisions
in the context explored here. A more comprehensive, dynamic model of firm decisions
to trade and innovate would be required to capture the temporal interplay between these
choices.
The contribution of this paper is twofold. We first propose an alternative approach to
studying the effects of learning from trade in a sequential framework between different
modes of trade and success in innovativeactivity. Secondly, we use data for Spanish manu-
facturing firms (ESEE) for the period 1990–2008 to empirically demonstrate that there is a
scope for sequencing between trade activities and innovation allowing firms an easier pro-
gression through different modes of trade and innovation activity. While we find evidence
of sequencing in all three directions, the support in the data is strongest for sequencing
proceeding from imports through innovation to exports and to further innovation.Sequenc-
©2014 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd
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