R&D, Export, and Investment Decision

TitleR&D, Export, and Investment Decision
Publication TypeWorking Paper
Year of Publication2016
AuthorsOA. Carboni, G. Medda
Number2016_05
ISBN Number978 88 8467 973 4
Keywordsexport, IV model, r&d
Abstract

This paper provides an empirical analysis of the mechanism through which R&D and export influence investment decision. The analysis is based on a large representative and cross-country comparative sample of manufacturing firms across seven European countries. To control for reverse causality between export decision and R&D spending and investment, we use an instrumental variable analysis to overcome the problem of endogeneity. Employing a three step procedure, it is assumed that R&D decision is endogenously determined by receiving public subsidies, and, in turn, affect investments through its impact on engagement by the firm in international trade. The results suggest that R&D positively affects export propensity. We find that there is an average increase in propensity to invest for those firms which decide to engage in R&D activities. The results also reveal that the effect of decision to export on investment behaviour is positive and highly significant, when accounting for endogeneity of export activity.

Citation Key6564
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