Innovation and internationalisation: a simultaneous equation approach

Abstract

Innovation virtuously impacts on the degree of international growth, which in turn positively influences innovation activities and then firms’ performance. Many authors have tried to identify and explain the relationship between these two phenomena at firm level. Only recently, few empirical studies investigate them at a more aggregate level. Moreover the literature focuses only on one direction of causality, while scant attention has been paid to inspect empirically innovation and internationalization together. This paper provides an empirical analysis of the mutual relationship of these two phenomena, taking into account various features of the regions themselves. The empirical study is based on a statistical analysis conducted on data concerning 20 Italian regions covering the period 1999-2008. To better understand the complex relationship between internationalization and innovation, we refer to the Structural Equation Models (SEM). These are multivariate regression type models, in which response variables could in turn act as dependent and predictor within a system of equations, and all variables are assumed to influence one-another reciprocally, either directly or through other variables as intermediaries.