The Role of Knowledge in Lowering Barriers to Internationalisation

Using a merged data set for Scotland comprising the Scottish Global Connections Survey (GCS) and the Annual Respondents Database (ARD), we demonstrate that exporters and those engaged in outward FDI have a productivity advantage over those firms that do not internationalise (both preand post-entry). We then consider the factors that determine which firms in Scotland operate in overseas markets, and specifically the role of knowledge-based assets in overcoming barriers to internationalisation. This allows us to consider whether firms that export are ‘better’ and would experience higher productivity even if they did not export, and thus if the post-entry positive impact of exporting on productivity is upward biased because of the self-selection of such firms into overseas markets. We find that such firms are indeed better, but when we use a ‘matching estimator’ approach we still find a post-entry productivity advantage which can be attributed to a ‘learning-by-exporting’ effect. Because the information in the GCS-ARD is limited with respect to firms’ assets, we also consider another source of information (Community Innovation Survey data) that allows us to understand better the importance of knowledge assets in determining internationalisation. Various policy conclusions are then considered based on our findings.