The effects of innovation on the decisions of exporting and/or importing in SMEs: empirical evidence in the case of Spain

Abstract

This paper analyses the involvement of small firms in international trade activities by identifying the comprehensive impact of innovation. Specifically, we study how innovation introduced by these firms determines entrepreneurial decision-making process regarding whether to engage in exporting and/or importing. Moreover, we account for several innovation outputs (product, process, and organisational/managerial innovation) when estimating the potentially interrelated decisions of whether to export and/or import. Results confirm the simultaneity of firms’ exporting and importing decisions and consequently these two decisions should be estimated together when analysing the influence incurred by the introduction of alternative types of innovation on said decisions. Furthermore, findings show complementarity between types of innovation to be relevant in explaining export and import decisions made by SMEs. Specifically, cumulative effects as a result of combining product and process innovation, as well as of product, process and organisational innovation, are highly significant in explaining export decisions, while in the case of imports, the combination of product and organisational innovation is shown to be significant. These findings lead to major policy and managerial implications regarding the promotion of SMEs’ participation in international trade flows through alternative innovation strategies.