The innovation and exports interplay across Africa: Does business environment matter?

Mauritius - 27 March 2022

The paper investigates the relationship between innovation and export behaviour across manufacturing and services firms in Africa. The study is based on the general premise that innovation has a positive effect on firm’s exports (self-selection hypothesis) and the complementary assumption that internationalisation drives firms to innovate (learning-by-exporting hypothesis). To test this complex, two-way link between innovation and exports, the study contributes to the existing literature by analysing the complementarity effects between product and process innovation in their relationship with exports. A combination of process and product innovation is expected to have a greater impact on the likelihood of firms entering the foreign market and on their export performance. Using data from 45 African countries, from 2006 to 2020, the multinomial probit and two-stage least squares models are estimated. There is support for the learning by exporting and the self-selection hypotheses for African firms. The findings also reveal the need to improve the business environment across African economies to foster greater exports and innovation.