Does Innovation Benefit Exporters in Pakistan more than Non-Exporters? An Analysis of Firms from the Textile, Light Engineering and Automotive Sectors

Innovation is recognized as an important catalyst for growth and competitiveness in the global economy, yet its specific impact on firm performance remains inadequately explored, particularly across different sectors in the context of developing countries. This paper examines the effects of innovation on the performance of both exporting and non-exporting firms within Pakistan’s textile, light engineering, and automobile industries. Utilizing a modified version of the Crépon, Duguet, and Mairessec (1998) innovation model, we investigate the impact of various innovations on firm performance and explore how adopting complementary innovations influences outcomes. Our initial results imply that non-exporting firms benefit more from individual types of innovations and their respective combinations of innovations purely driven by younger firms. However, we get more nuanced results when we divide firms by sector. In the textile sector, dominated by exporters, innovation positively impacts firm outcomes through product and technological advancements, with the benefits focused on more extensive and established firms. Conversely, in the light engineering sector, individual innovation adoption favors exporters, while the adoption of complementary innovations benefits non-exporters, especially young firms. In the automotive sector, innovation impacts exporters and nonexporters differently and favors older firms. These results add to our understanding of the innovation-performance nexus in Pakistan’s industrial landscape and can provide practical insights for policymakers, industry stakeholders, and academics.