Shaping Up in the Domestic Market to Export Innovated Product Varieties

Abstract

This paper examines the process from product variety innovation to exporting using a plant-product dataset for Korean MFG, focusing on the role of domestic market for exporting. We find there are two types of exporters of the innovated product varieties: 1) instant exporters which begin producing and exporting in the same year, and 2) delayed exporters which begin exporting the innovated varieties after some production experience in the domestic market. Compared with instant exporters, the delayed exporters tend to be less productive, smaller, and less likely to have previous exporting experience, but more likely to be engaged in R&D. While producing for the domestic market only, delayed exporters become more productive and capital- and skill-intensive, increase R&D and capital investments, and scale up the production of the innovated product varieties. We provide some evidence that these changes are related to future exporting.