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Firm productivity and export decisions are closely related to innovation activity. Product innovation may play a more important role in the decision to start exporting, while successful exporting may drive process innovation. This suggests that the causality between innovation and exporting may run in both directions. Using detailed micro data from innovation surveys, industrial production surveys, and trade information for Slovenian firms in 1996-2002, the authors investigate the bidirectional causal relationship between firm innovation and export activity. They find no evidence for the hypothesis that either product or process innovations increase the probability of becoming a first-time exporter, but they do find evidence in both the innovation survey and the industrial production survey that exporting leads to productivity improvements.
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