Innovation fostering export or vice versa? A panel analysis of the moderating role of firm age

Master thesis by Dennis van Mierlo

In January 2017 Dennis van Mierlo graduated from the Tilburg School of Economics and Management at Tilburg University. He followed the master International Management and wrote his master thesis in the area of corporate entrepreneurship and innovation. The thesis comes to the conclusion that firm age does not play an important role in the relationship between innovation and export

Within the scientific community there appears to be no clear consensus about the direction of causality between innovation and export. There are studies that have shown that export activities are a cause of innovation; firms that act on foreign markets face unfamiliar challenges and in overcoming these they might develop new knowledge or information which allows them to be more competitive. Other studies argue the opposite; firms that introduce product- and process-innovations are more likely to increase export. Some studies even propose that their might be a reinforcing link between the two; innovation leads to increased export and vice versa. Thus, the direction of causality between innovation and export is still under debate.

This thesis examines the relationship between innovation and export in a new way, by taking into account the potentially moderating effect of firm age. The age of an organization might act as an important factor influencing innovation, since an organization’s age is closely related to their dynamic capabilities. Specifically, the following research question is addressed: Is there a difference in the causal relationship of innovation and export between younger and older firms?

To answer this question data of 259 South Korean manufacturing firms were collected over the six-year period of 2007-2012 and several panel regressions (random-effect models and Tobit regressions) and granger causality tests were performed. The results showed no evidence of firm age being of significant influence in the relationship between innovation and export. However, the results did show that an increase in the age of firms has a negative effect on their R&D intensity and that the export intensity of firms negatively effects their R&D intensity.

As the findings suggest that firm age does not play an important role within the relationship of innovation and export, other factors could possibly give more insight into the relationship. For instance the life cycle of firms, which is also tightly linked to the dynamic capabilities of organizations.