Convergence or Capabilities? Explaining Firm Heterogeneity in Learning by Exporting

An interesting theoretical debate arises with respect to learning-by-exporting when considering macro-economic convergence and firm capability arguments side-by-side. Convergence theory intimates that technologically lagging firms stand to benefit most from exporting because exposure to the advanced technological knowledge in foreign markets allows them to make up for the disparity in capabilities and close the gap with their technologically endowed counterparts. By contrast, the capabilities literature posits that technologically superior firms stand to benefit most from trade since they are better equipped to translate knowledge inputs derived from foreign markets into innovative outcomes. In this paper, we focus on the effect of exporting on innovation and empirically explore whether technologically leading or lagging firms benefit disproportionately. Using a sample of Spanish manufacturing firms from 1990-1997, we empirically investigate how exporting differentially influences the patent output of technologically leading and lagging firms. We find that exporting is associated with the ex post increase in innovative productivity for both technologically leading and lagging firms. Moreover, the results provide support for the firm capability claim. Notably, technologically leading firms apply for more patents subsequent to exporting than technologically lagging firms.