Direct or indirect exports: what matters for firms’ innovation activities?

ABSTRACT

This article uses firm-level data from 27 transition economies to investigate whether the choice to directly export versus indirectly export plays a role in the innovation behaviour of exporting firms. We find that firms that directly export have a higher probability of introducing product innovation compared to non-exporters firms and indirect exporters.

KEYWORDS:

• Direct exports
• indirect exports
• innovation
• transition economies
• trade intermediaries
• learning-by-exporting

JEL CLASSIFICATION:

• D22
• F14
• O31

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The Appendix has further details on the dataset.

² Firms come from 15 transition countries from Central and Eastern Europe (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Poland, Romania, Serbia and Montenegro, Slovak Republic, and Slovenia), 11 transition countries from the former Soviet Union (Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Ukraine and Uzbekistan) and Turkey.

³ Based on the percentage of establishment’s sales sold domestically, through both indirect and direct exports, we classify firms as non-exporters if they serve only the domestic market, direct exporters if they report a positive share of sales in the form of direct exports, and indirect exporters if they report a positive share of sales in the form of indirect exports. We also consider a firm as an indirect exporter if the firm reports a positive share of sales in the forms of both direct and indirect exports. This is in line with the idea that a firm exporting with both modes must have not completely overcome the higher fixed costs of exporting only directly (McCann 2013).

⁴ See, among others, Lechner (2002).

⁵ The Appendix gives a detailed description of the pre-treatment variables.

⁶ We use a threshold value of 1%.

⁷ Separate estimates have been run with the additional controls of years of experience as exporters, and a dummy for past R&D investments. While the number of observations drops substantially, the results are very similar to those in Table 1. These estimations are available upon request.

⁸ This means that the absolute difference in the propensity score between controls and treated firms will be lower than the value of the bandwidth.

⁹ More specifically, the BEEPS firm-level survey has 17 sections that cover questions related to Control Information, General Information, Infrastructure and Services, Sales and Supplies, Degree of Competition, Capacity, Innovation, Land, Crime, Finance, Business–Government Relations, Use of Consulting Services, Labour, Business Environment, Performance, Expectations and Perceptions of Obstacles.