Importing, Exporting and Innovation in Developing Countries

by Murat Seker, Enterprise Analysis Unit - The World Bank, December 2009

Recent studies have shown that both importers and exporters perform better than firms that serve only domestic markets. Using a detailed plant level dataset from 40 developing countries, this paper shows that there are persistent differences in firm evolution when they are grouped according to their trade orientation as: two-way traders (both importing and exporting), only importers, only exporters, and non-traders. Based on a dynamic framework of firm evolution which incorporates importing and exporting choices, the author introduces a reduced form model. He analyzes whether globally engaged firms grow faster and innovate more than domestic firms. Analyzing a rich set of measures of growth and innovation, the author shows that: i) globally engaged firms are larger, more productive, and grow faster than non-traders, ii) two-way traders are the fastest growing and most innovative group who are followed by only-exporters, iii) firms with foreign ownership grow faster but they are less innovative than domestically owned firms iv) estimating export premium without controlling for import status is likely to overestimate the actual value by capturing the import premium. Finally the author shows the robustness of the findings with providing evidence from the panel data constructed from the original dataset and using additional control variables that are likely to affect firm growth.

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