Productivity of Catalan firms. International exposure and (product) innovation

Exporting firms are typically the more productive firms in an economy. Based on this observation, policy makers typically enact policies to stimulate exportation by domestic firms. In this chapter, we argue that firms make productivity enhancing investments and as a result the more productive firms start an export activity, which might make these firms even more productive. We find evidence of two types of productivity enhancing investments made by Catalan firms: both the fact that a firm imports some of its inputs and that the firm has innovated in the previous year seem to positively affect productivity and, hence, the decision to start exporting. We also find that there is an important difference between the effects of product innovations versus process innovations: product innovations seem to matter more for the export decision of Catalan firms while process innovations have little or no effect on this decision. Overall, we find that importing, innovating and exporting are strongly complementary activities. At the same time, firms develop these activities sequentially. Therefore, it seems that stimulating firms to become active in the international sourcing market and generate (product) innovations might be more productive policy measures than stimulating firms to enter the export market directly.Firms; Productivity; Catalonia; Innovation;