Making one’s own way: jumping ahead in the capability space and exporting among Indian firms

This paper provides large scale evidence on the determinants of international competitiveness of Indian manufacturing firms, focusing in particular on the role of technology, costs and imported intermediate inputs. Our evidence suggests that innovation, in particular R&D investment, is positively related to both firms’ probability to export and firms’ export volumes. We also find that imported intermediate inputs, incorporating foreign technology is strongly associated with expanding export activities of firms. Finally, and in contrast to much of previous evidence on developed economies, we find that higher productivity or lower unit labour costs are not systematically associated with the probability to enter export markets, but they are positively related to higher export volumes. Overall our results point to the existence of a pattern of involvement in international trade for firms in developing countries that is not relying as a main driver on cost competitiveness.