Microeconomic and macroeconomic implications of firms’ internationalization and innovation strategies: the role of demand and informational barriers

Notwithstanding the larger presence of big and more productive firms in foreign markets, and their relatively better performance in innovation (the so called “size premium”), we provide evidence showing that small and medium firms’ activities in foreign markets are both large and relevant, and that exporters are more likely to introduce product innovations than non-exporters also at relatively small firm sizes and productivity levels. Typical supply-side factors are not sufficient alone to explain firms’ behavior. Since innovation, in particular product innovation, partly stems from inter-firm relationships, in this project we investigate, both theoretically and empirically, the role of upstream-downstream relationships in production. Using the European survey EFIGE, we provide some empirical evidence that firms carrying out production to order for foreign firms (“production to order exporters”) are indeed more likely to introduce product innovations than subcontractors for domestic buyers. Following the insights of the firm-level investigation, we have then explored the relationship between a country’s participation in the International Fragmentation of Production (IFP) and its innovativeness measured by patents per capita, by using the recently released WIOT (World Input-Output Tables) data.