The Effects of Internationalization on Innovation: Firm-Level Evidence for Transition Economies

Abstract

This study analyses how various internationalization modes affect innovation in ten transition economies. Using propensity score matching to account for selection, we match firms on size, sector, and country. A key contribution is that firms are also matched based on the heterogeneity of institutional legacy systems at the firm level as such burden is commonly associated with firms in transition economies and affects internationalization. The empirical results show that internationalization raises a firm’s tendency to innovate. More specific, outsourcing is connected to product innovation, whereas exporting and FDI are associated with R&D spending and patenting.