Internationalization and Innovation; A PSM Approach

Abstract: Recent phenomena, as the offshoring of R&D activities, have raised the question of whether intensive internationalization strategies are hampering the abilities of firms to implement innovations. This research wants to study the intensive margin of internationalization in order to understand whether the breakage of the links within the production processes, due to practices such as offshoring and outsourcing, were indeed jeopardizing the innovative capacities of European manufacturing firms in 2008. By implementing a propensity score matching with binary treatment, I find no evidence that internationalization had a negative impact on innovation due to the lost links within the production process, but I do find hints that intensive internationalization hurt intensive innovation abilities. Lastly, I also find that offshoring and importing intermediate products were better for innovation than outsourcing, on the extensive margin.