Clustering Effects on Firm Exporting with Productivity-Enhancing R&D in China

This paper examines the effects of regional clustering on firm exporting performance taking into account differences in firm productivity as well as firm's attempts to enhance productivity via innovation investments. A structural framework is employed using a set of recursive equations that is capable of correcting for most estimation issues related to selection, simultaneity and endogeneity. The main findings reveal that regional clustering brings about quite trivial direct benefits to exporters after taking into account important sources of firm heterogeneity, rather the main benefits of clustering on exporting appear to arise indirectly through investments in innovation and productivity. The main implication of the findings suggests that a better endowed geographical area improves international competitiveness mainly by enhancing the super-additive effects of investments in technology on productivity, which in turn, enhances exporting performance