Exporting, Innovation and the Role of Immigrants

This research uses Statistics New Zealand"s Integrated Data Infrastructure and data from the Business Operations Survey to investigate the correlations at the firm level between

1. employee characteristics and firm international engagement, and
2. firm international engagement and innovation.

The main findings on employee characteristics and international engagement are:

• Firms that employ a higher fraction of high-ability foreigners (and thus a lower fraction of high-ability natives) are more likely to export.
• Firms that employ a higher proportion of people who previously worked for an exporter are more likely to export.
• The proportions of foreign employees and employees with export experience are correlated with many other types of international engagement by firms.
• Employees from Australia and the Pacific and from Europe are positively correlated with firm exporting. The correlations are absent for foreign employees from Asia.
• The probability that a firm earns income in a given country is more correlated with its fraction of employees from that country than with its total fraction of foreign employees.
• A firm with a higher fraction of employees from a given country is more likely to earn income in that country only if the country is developed.

The main findings on international engagement and innovation are:

• Firms that export innovate more, even after controlling for size.
• Among exporters, the proportion of firm sales that comes from exports shows little correlation with innovation.
• Firms that export to more countries innovate more.
• Exports of raw goods have little correlation with innovation; exports of manufactured goods or services have a strong correlation.
• Firms that recently entered a new export market report especially high innovation, and firms that began earning overseas income in the previous two years report higher innovation than those that have earned overseas income for a longer period.
• Not all export destinations are correlated with higher innovation. Exports to the Americas are positively correlated with innovation, but there is no evidence that firms that export more to Asia are more likely to innovate.
• In addition to exporting, most other types of international engagement, such as inward and outward foreign direct investment, are positively correlated with innovation.
• Firms' sources of ideas for innovation vary with the types of international engagement in which they are involved. The patterns are consistent with exporters gaining ideas from their international customers, firms gaining ideas from their foreign owners, and importers gaining ideas from their foreign suppliers.

Although these relationships are correlations only and should not be interpreted as proof of causality, they do suggest that the experience and specialized knowledge of employees may be relevant to firms' decisions to engage internationally, and that such engagement may act as a conduit for foreign knowledge to enter the country.