PRODUCT INNOVATION, EXPORT AND LOCATION OF ENTREPRENEURSHIP

This paper introduces a model where new products are introduced by entrepreneurs or innovating firms in a quasi-temporal setting. Market conditions are characterized by monopolistic competition between varieties belonging to the same product group, where varieties can become obsolete over time and hence disappear from demand. Firms that innovate have to make an R&D investment, and a firm’s decision to export a variety to a given market is associated with a market channel investment. The model is used to predict export behavior by firms in different regional milieus, and these predictions are compared with observations from a rich data set describing export activities of Swedish firms. The data set contains firm level information about export flows, where the flow of each variety is associated with the exporting firm’s location, export value, price and destination. In the empirical analysis we examine how the arrival of innovation ideas varies across regions and how this variation depends on regional characteristics.QC 2012020