Does innovation help to explain the effect of export on productivity? Evidence from the French dairy industry

Abstract

While there is strong evidence that becoming an exporter increases a firm’s productivity, underlying mechanisms that explain such a relationship remain largely unexplored. This paper analyses the contribution of the complementarity between exporting and investment in technology as a potential driver of export-related productivity gains. We employ firm-level data on production and trade combined with information on new products in the French dairy industry to conduct a causal mediation analysis between exporting, innovation investment, innovation output and productivity. Our estimation result show that starting exports increase the productivity by eight percentage points. Our mediation analysis reveals that innovation (investment and output) explains 31 per cent of this productivity growth.