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R&D Expenditures and Geographical Sales Diversification
Author(s) -
Baum Christopher F.,
Caglayan Mustafa,
Talavera Oleksandr
Publication year - 2016
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12092
Subject(s) - diversification (marketing strategy) , endogeneity , economics , monetary economics , industrial organization , business , econometrics , marketing
This paper empirically examines the role of diversification in export markets on firm‐level R&D activities taking account of the potential endogeneity in this relationship. We show that geographical sales diversification across different regions of the world induces UK firms to increase their R&D expenditures, as firms must innovate and develop new products to maintain a competitive edge over their rivals. This finding is robust to a battery of sensitivity checks. Furthermore, we find that R&D expenditures cause higher export sales but do not cause export sales diversification. Hence, the result that diversification causes higher R&D activity is not driven by reverse causality.