1. Methodology: IV to control for endogeneity of the measures of innovation. Results (only for regions with extreme values) Table 2. Effects from the 2SLS estimates for the intensive margin of exports in Spanish regions. Regional impact of Innovation on the E XTENSIVE M ARGIN of Export Methodology: B IPROBIT MODEL controlling for endogeneity of the measures of innovation. Results (only for regions with extreme values) Table 1. Marginal effects for the EXTENSIVE MARGIN of exports in Spanish regions “Firms exports, innovation,… and regions” Enrique López-Bazo (UB&AQR-IREA) Elisabet Motellón (UOC&AQR-IREA) Firm’s heterogeneity explains a big deal of regional disparities in export performance (extensive and intensive margins). In particular, there is a key role of differences across regions in propensity to innovate. H YPOTHESIS Database and Variables (firm-level data) Innovation in Companies Survey (ICS), produced by INE (waves: 2005 and 2009) Representative at regional level Information on: extensive and intensive margin of exports technological and non-technological innovation, productivity, human capital, … Regional impact of innovation on the I NTENSIVE M ARGIN of Export C OUNTERFACTUAL regional export margins under different scenarios Descriptive Analysis (Spain) Large regional disparities in export activity, more pronounced in extensive margin of exports. Disparities in innovation propensity as well Regions with high (low) innovation tend to be those with high (low) extensive margin of exports Ambiguous relationship between innovation and intensive margin of exports *** p<0.01, ** p<0.05, * p<0.1. Marginal effects obtained as the average from the ones for each firm in the sample. The specification used to compute the marginal effects includes controls for productivity, size, firm group and industry dummies. *** p<0.01, ** p<0.05, * p<0.1. The specification used to compute the marginal effects includes controls for productivity, size, firm group and industry dummies. Firms in regions with high extensive margin of exports tended to innovate more than firms in regions with a lower margin and, in addition, they obtained a higher payoff from innovation in terms of exports status. Empirical specification 1. Assigning to each region a common propensity to innovate  Scenarios Table 3 2. … modifying not only innovation but also firms’ labour productivity  Scenarios Table 4 Results (only for regions with extreme values) The effect of innovation on the share of sales abroad is rather limited and even negligible in most Spanish regions. Table 3. Changes in the margins of exports from COUNTERFACTUAL INNOVATION. Table 4. Changes in the margins of exports from COUNTERFACTUAL INNOVATION AND PRODUCTIVITY. Note: Change in percentage points with respect to the actual extensive and intensive margins in each region. Figures on the share of innovative firms in Catalonia were used as a benchmark. Results obtained from the bivariate probit (extensive margin) and the 2SLS (intensive margin) estimates. (New) Trade Literature Firm heterogeneity is crucial for explaining export activity. Special attention to the role played by innovation: improvement in productive processes and/or in products increases sales in foreign markets. All the literature that have analysed the link between innovation and firm exports so far have neglected the role of space. Regional Economics Literature Disparities in volume of exports (absolute and relative) Differences across regions in firm’s characteristics (beyond industrial mix and size) Regional heterogeneity are likely to affect cost of exporting, and self-selection into export The change in the propensity to innovate and in the level of productivity would substantially encourage firm’s decision to export in all regions, but would have an almost negligible effect on the share of sales abroad made by exporting firms. This study provides evidence on the effect of firm innovation on export performance from a regional viewpoint. As a novel contribution, the effect is allowed to vary across regions. Innovative firms are more prone to export than otherwise similar non- innovative firms in all Spanish regions. However, the effect of innovation is far from regionally uniform. In addition to the effect of regional differences in innovation, disparities in firm’s productivity are crucial when explaining geographical gaps in the extensive margin of exports. Direct policies aiming at promoting exports in each region must focus on the group of innovative firms not exporting yet. They are candidates to become exporters if the locational disadvantages are compensated in some way. C ONCLUDING COMMENTS The change in the extensive margin is far more pronounced than the change caused in the intensive margin. This is so for the entire country and for most regions. “Firms exports, innovation,… and regions” E. López-Bazo (UB & AQR-IREA) & E. Motellón (UOC & AQR-IREA) “Firms exports, innovation,… and regions” E. López-Bazo (UB & AQR-IREA) & E. Motellón (UOC & AQR-IREA) López-Bazo, E. and E. Motellón (2013): “Firm exports, innovation,… and regions”, WP IREA 2013/08. (http://www.ub.edu/irea/working_papers/2013/201308.pdf ) Contact me for any suggestion or comment: emotellon@uoc.edu I NTRODUCTION The benchmark is Catalonia (region with highest share of innovative firm)