Both Sterlacchini (1999) and Nassimbeni (2001) estimated the effect of several technological indicators on exports for a sample of small and medium firms in Italy. They found that the share of total sales spent on design and engineering, the technological level of capital stock, and product innovations are positively related to export propensity. On the other hand, Cassiman and Martinez-Ros (2003), based on data for the Spanish manufacturing sector, found that process innovations are more important drivers of export intensity than product innovations. Similar conclusions were found by Lefebvre et al. (1999) when estimating export intensity of small and medium Canadian firms that export to markets other than the U.S. In addition, Roper and Love (2002), using a sample of UK and German firms, tested three measures of indirect innovation externalities (from the sector firms belong to, inter-sector, and supply-chain spillovers), obtaining a positive relationship between innovation and export propensity and intensity.

On the other hand, Willmore (1992), using a sample of multinational firms in Brazil, found no significant role for R&D expenditures as a determinant of exports. In the same line, Ito and Pucik (1993) found that the ratio of R&D expenditures to total sales was a significant determinant of export intensity only when size (total assets) was dropped from the regression.<sup>10</sup> Kumar and Siddharthan (1994) found a significant effect of R&D expenditures on the export propensity of 640 Indian firms for the period 19881990, but this held only for firms in low- and medium-technology industries.

An interesting approach of technological capabilities is related to the performance of R&D in the industrial plant, namely “in-house R&D.” Roper and Love (2001), working with a dataset for the Republic of Ireland, found that in-house R&D was the most important (and positive) technological variable in the export intensity equation for domestically-owned firms. However, when considering only foreign-owned firms, R&D conducted elsewhere in the group (typically outside of Ireland) proved to be the most significant (and positive) technological variable in their export intensity model.

According to Nassimbeni (2001), these inconsistent results may reflect the inappropriate use of R&D as a measure of innovation, as pointed out by Wakelin (1998). He argues that specific R&D processes rarely take place in small firms; for these firms “innovation is mostly exogenous and takes the form of incremental (often imitative) modifications of existing products or processes” (Nassimbeni, 2001:248). In these cases, R&D is only a partial measure of technology because it does not take into account incremental improvements of products and processes observed in small and medium firms that do not have a formal R&D department.

To overcome this limitation, Wakelin (1998) used data from the “Science Policy Research Unit/SPRU” innovation survey, which defines innovation as “the successful commercial introduction of new or improved products, process or materials in the market.” Working with two different samples (one for innovative firms and the other for non-innovative firms), she concluded that small innovative firms are less likely to export and more likely to serve domestic markets than small non-innovative firms. On the other 10 A criticism to their study is that they used OLS estimates, which can be downward-biased in the exports to sales ratio if it has a large number of observations in its lower limit (firms that do not export).

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