expand access to both knowledge and input and output markets, via indicators of whether the firm established a new foreign joint venture and whether it entered into a new technology licensing agreement in the past three years.<sup>17</sup> The vector includes variables indicating the firm‘s ownership (foreign, government), level of organization/legal status (whether the firm is incorporated), size class and age group.<sup>18</sup> The vector contains a measure of the progressivity of the firm‘s sub-sector in terms of the US R&D intensity of that sub-sector, as calculated in Sharma et al. (2010). The vector is comprised of country fixed effects.

The second equations are enterprise product and process innovation equations, estimated using a probit estimator: Here, indicates whether the firm introduced a new product or process innovation in the last three years. The vector now includes a broader set of variables describing the firm‘s relationships to its business environment including the firm‘s R&D intensity as a correlate of its ability to innovate,<sup>19</sup> access to capital, access to implementation skills (proxied by whether the firm has a formal training program), access to ideas (use of the internet and whether the firm is part of a business association), as well as opportunities for expansion if the innovation is successful. The vector contains the firm-level controls as in specification (1), contains a vector of two-digit industry fixed effects, and is the same as in specification (1).

The third equation seeks to explain variation among levels of the enterprises‘ TFP<sup>20</sup> , and is estimated via OLS: 17 As summarized in Table 1c, these indicators are constructed based on responses to the following questions asked in the Enterprise Surveys: ―Has your company undertaken any of the following initiative in the last three years: Agreed to a new joint venture with foreign partner?‖ and ―Has your company undertaken any of the following initiative in the last three years: Obtained a new licensing agreement?‖ 18 We classify firms into four size categories based on the number of full-time permanent employees: micro (1 to 10), small (11 to 50), medium (51 to 200) and large (more than 200). Establishment age is determined by responses to ―In what year did your firm begin operations in this country?‖ and is used to separate firms into three age classes: young (less than five years old), mature (five to 15 years old) and old (more than 15 years since started operations). 19 We use R&D intensity in the innovation equations as it may more accurately capture the differential effect of additional spending on R&D on the likelihood of innovation. Using an R&D indicator variable (as is estimated in equation 1) in place of R&D intensity in the innovation equations does not substantively alter our results or conclusions.

> 20 We calculate TFP by estimating a Cobb-Douglas production function from our enterprise data separately for each two-digit ISIC industry. Output is the real value of enterprise sales and inputs are the real value of fixed assets, total labor costs (actual or ILO wages) and materials expense. All variables are in logs. Each firm‘s residual from its

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