Contributions to Investigating the Innovation-productivity-exporting Nexus: (I) the Direction and Strength of the Relationships; and (Ii) the Use of Tax Credits to Promote Research and Development

The importance and benefits of productivity growth, innovation and technological progress, and international trade are long established and promotion of each of these is on the agendas of policy-makers. The links between productivity, innovation and exporting at the firm-level have been partially explored, yet the nature of this nexus is far from being understood. The literature suggests a multifaceted relationship between the three phenomena, and especially that the links between the phenomena tend to be multidirectional. Yet gaps in our understanding of the nature, timing and direction of the links between firm-level innovation, productivity and exporting can lead to less-thanoptimal public policies targeting these three areas.

The first part of the thesis (Chapters 2-4) critically examines the literature to explore theoretically the broad topics of firm-level productivity, innovation and exporting. This theoretical exploration offers a comprehensive and holistic critical overview of these topics, and generates novel insights into the theoretical foundations and applicability of each concept in practice. Chapter 5 provides an overview of the theoretical understanding of the nexus between firm-level productivity, innovation and exporting, and a critical evaluation of previous studies that explored this nexus.
The first empirical chapter, Chapter 6, explores the nexus between firm-level productivity, innovation and exporting. This empirical investigation is built on the findings of the previous chapters, especially the suggested mutual endogeneity between firm-level productivity, innovation and exporting. The findings from the investigation, utilising a Spanish dataset of manufacturing firms in the period 2001 – 2016, provide strong support for Melitz’s (2003) theoretical model suggesting that more productive firms are more likely to engage in exporting activities. However, the investigation suggests that the other links in the nexus tend to be absent or context-specific.

The final part of the thesis concentrates on the exploration of innovation policies and their success in promoting research and development (R&D) expenditures, in particular, R&D tax credits. Throughout the OECD, R&D tax credits are now the main policy designed to increase R&D expenditures, which are the longest-established indicator of innovation and, in turn, are the driver of innovation (according to the “new growth theory”) and, hence, in turn, productivity and export growth (according to the literature and our findings in Chapter 6). Chapter 7 provides an in-depth exploration of different approaches to evaluating the effectiveness of R&D tax credits and assesses the plausibility of their underlying assumptions. Using the same dataset of Spanish manufacturing firms, Chapter 8 empirically investigates these different approaches. The results suggest that R&D tax credits are effective in increasing the R&D expenditures of firms. In this dataset, different approaches lead to similar levels of additionality.

These findings offer four main policy recommendations. First, the need for separate promotion mechanisms for increasing firm-level productivity, innovation and exporting. Second, helping firms to build their resources and capabilities can stimulate different aspects of the nexus. Third, R&D credits are an effective instrument in increasing firmlevel R&D expenditures. Finally, this thesis suggests that, although different approaches yield similar results, caution should still be exercised in the choice of the approach used to evaluate the effectiveness of R&D tax credits.