Industrial upgrading with shifting resource toward external information sources

Abstract

Using data from an original and unique firm-level survey conducted in Southeast Asia, this paper examines the impacts of shifting from exploiting internal resources to exploring external information sources on product innovations and engaging foreign market for firms in emerging economies. This paper explores how the impacts of a shift toward external links vary across knowledge resources from trade and non-trade partners as well as across domestic and international partners. We also present findings regarding how the impacts of shifting to exploring external information sources vary between local firms and foreign affiliates. A 10% shift in resource allocation from internal resources to external links can generate a 1.4 percentage point increase in the likelihood of costly product innovation as well as a 1.9-3.8 percentage point increase in the probability of foreign market participation.