Internal and External Knowledge – Innovation of Export Varieties.

Firms in local industries maintain their capability to generate innovations by simultaneously exploiting internal and external knowledge resources. The paper introduces the notion variety triplet to distinguish individual export varieties, where a triplet is a unique combination of a firm, a product code and a destination country. For each date the set of variety triplets in each local industry records all remaining past product innovations. In view of this the paper examines how internal and external knowledge of local industries influence the industry’s scope and value of export varieties. The paper contributes to existing knowledge firstly by introducing variables that measure a local industry’s access to external supply of knowledge, divided into local and extra-local supply. Secondly, the paper sheds light on how internal and external knowledge influence the scope of product innovations in local industries, with firm-level data from Sweden. Thirdly, the paper compares the influence of knowledge on the entire set of variety triplets and on a separate set of recently introduced varieties.