Internationalization and innovation of firms: evidence and policy

We use a representative and cross-country comparable sample of manufacturing firms (EFIGE) to document the patterns and the interaction of correlations between firm firm-level internationalization, innovation and productivity across seven European countries (Austria, France, Germany, Hungary, Italy, Spain and United Kingdom). After controlling for size and productivity, we show that the positive effect of innovation on internationalization hold across counties and sectors. In so doing, we rely on the recently released EU-EFIGE/Bruegel-UniCredit (henceforth, simply EFIGE) dataset. Our analysis suggests that export promotion per se is indeed unlikely to lead to sustainable internationalization because internationalization is much more than export and because in the medium-to-long term internationalization is driven by innovation. We, therefore, recommend coordination and integration of internationalization and innovation policies under one roof at both national and EU levels with an enhanced coordinating role for EU institutions.