The Heterogeneous Impact of Market Size on Innovation: Evidence from French Firm-Level Exports

Abstract We analyze how demand conditions faced by a firm in its export markets affect innovation decisions. exploit exogenous firm-level shocks and find that firms respond patenting more; furthermore this response is driven the subset of initially more productive firms. The patent arises 2 to 5 years after shock, highlighting time required innovate. In contrast, shock raises contemporaneous sales employment for all regardless their productivity. This skewed common naturally from model endogenous competition with heterogeneity.