The Effects of Different Types of Firm R&D on Foreign Market Performance: Evidence from Korean Firms
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This paper examines the effects of firm R&D on exports and foreign direct investment (FDI) by using Korean firm data. To provide in-depth analysis on R&D effects, we estimate the effects of technical innovation R&D and production process R&D by using recursive structural equation model. Taking into account that technical innovation is associated with product-specific quality, while production process innovation affects firm-specific productivity, we use firm productivity as a mediator variable to estimate the effects of firm R&D with and without incorporating firm productivity in the model. Our results show that firm R&D is more effective on increasing exports and FDI directly than indirectly through firm productivity change. Estimating firm R&D effects across different industry sectors, we find that firm R&D has significant impact on exports and FDI directly and indirectly through total factor productivity change among capital-intensive sectors, while it has significant effects on exports through labor productivity change insidelabor-intensive sectors. Our results provide evidence that while technical innovation R&D is more effective on improving foreign market performance, different types of R&D activities have different effects depending on industry characteristics.
Abstract
This paper examines the effects of firm R&D on exports and foreign direct investment (FDI) by using Korean firm data. To provide in-depth analysis on R&D effects, we estimate the effects of technical innovation R&D and production process R&D by using recursive structural equation model. Taking into account that technical innovation is associated with product-specific quality, while production process innovation affects firm-specific productivity, we use firm productivity as a mediator variable to estimate the effects of firm R&D with and without incorporating firm productivity in the model. Our results show that firm R&D is more effective on increasing exports and FDI directly than indirectly through firm productivity change. Estimating firm R&D effects across different industry sectors, we find that firm R&D has significant impact on exports and FDI directly and indirectly through total factor productivity change among capital-intensive sectors, while it has significant effects on exports through labor productivity change insidelabor-intensive sectors. Our results provide evidence that while technical innovation R&D is more effective on improving foreign market performance, different types of R&D activities have different effects depending on industry characteristics.
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