R&D Investment and Export Dynamics

A positive correlation between \u85rm productivity and export market participation has been well documented in producer micro data. Recent empirical studies and theoretical analyses have emphasized that the export-productivity relationship may be a reection of the rms other investment activities, particularly investments in R&D or new technology. These investments can both raise productivity and increase the payo ¤ to exporting. In this paper we develop a dynamic structural model of the \u85rms decision to invest in R&D and participate in the export market. The investment decisions depend on the expected future pro\u85tability and the \u85xed and sunk costs incurred with each activity. We estimate the model using micro data from the Taiwanese electronics industry and \u85nd a complex set of interactions between R&D, exporting, and productivity. Both R&D and exporting have a positive direct e¤ect on the \u85rms future productivity but, when modeled as discrete decisions, the e¤ect of R&D is larger. The \u85rms choice to export or invest in R&D is a¤ected by the \u85rms history of these activities because the future return to each activity is a¤ected by the presence of the other one. We thank Jan de Loecker, Ariel Pakes, Nina Pavnick, and Jim Tybout for helpful discussions and comments. All remaining errors are ours. 1