|Competitors 1|(0/1) if a firm faces 0 competitors in the main market|
|---|---|
|Competitors 2|(0/1) if a firm faces 1 competitor in the main market|
|Competitors 3|(0/1) if a firm faces 2 to 5 competitors in the main market|
|Competitors 4|(0/1) if a firm faces more than 5 competitors in the main market|
|International market|% of firms whose direct exports consist of more than 50% of total sales by sector (at 2-<br>digit ISIC level) and country for each survey year|
|**_Other_**||
|Materials|Log (constant US$) raw materials and intermediate goods per full-time worker|

Nominal variables such as labor productivity, R&D per worker, fixed investment, and materials are deflated using weighted GDP deflators from WDI. The GDP deflators are weighted based on the closing month of each firm’s last completed fiscal year. For example, if a firm’s last complete fiscal year spans July 2015 through June 2016, then relevant deflator corresponds to 6 6 d d d d 2015 + d d d d 2016. Since these variables are expressed in local currency (LCU), 12 12 we convert them into USD using weighted exchange rates.

When the closing/starting month data of the last completed fiscal year is missing, we assume the start month to be 1 if the last completed fiscal year spans only one year (i.e., 2014) and 7 if the last completed fiscal year spans two years (i.e., 2013-2014). If the last completed fiscal year variable is missing, we assume it as survey-year minus 1 or refer to the corresponding questionnaires if they indicated the actual last completed fiscal year. We use the sampling weight according to median eligibility from WBES. To avoid biases from extreme values, we censor the age of the firm at 100 and the years of managerial experience in a sector at 35.<sup>5</sup> Half of the firms in our sample perform some kind of innovation (Table 2). Process innovation is more widely adopted (40% of firms) than product innovation (20% of firms). Only 10% of firms invest in R&D. Similarly, the use of technologies licensed by foreign-owned companies is limited: only10% of firms do it. Firms tend to be small, located in cities with at least 1 million people. Concerning internal capabilities, firms are relatively young and on average 14 years old. The typical worker has 10 years of education (human capital). Only 10% of firms belong to a large group and receive 10% or more foreign ownership (FDI), respectively. Diversification of own products is also quite low as about three-quarters of firms have more than 90% of their sales come from their main products (diversification index).

_Table 2 Weighted summary statistics of the estimation sample of the first stage of our CDM model_

||N|Mean|SD|Min|p25|p75|Max|
|---|---|---|---|---|---|---|---|
|**Innovation**|321997|0.5|0.5|0.0|0.0|1.0|1.0|
|**Product innovation**|323101|0.2|0.4|0.0|0.0|0.0|1.0|
|**Process innovation**|322932|0.4|0.5|0.0|0.0|1.0|1.0|
|**Labor productivity**|323587|10.1|1.3|2.7|9.3|11.0|17.1|
|**R&D expenses per**<br>**worker (log constant**<br>**US$)**|33919|7.5|2.0|-13.3|6.5|8.8|21.8|

5 Additional data cleaning included dropping firms with inconsistent answers on innovation investments. Specifically, we drop firms that state not to have invested in R&D, but then report the amount of R&D expenditure.

5