Disentangling the Effects of Business Groups in the Innovation-Export Relationship

Abstract

This paper examines the role of business groups (BGs) in the relationship between innovation and exports. In the light of the divergent theoretical predictions on the role of BGs, we develop hypotheses that are explicitly based on the institutional context of emerging economies. By analyzing the institutional pressures under which BGs shape their strategies and operations, we formulate hypotheses on the effect of BG affiliation on exports, and the impact of innovation on exports. Empirical results, based on a large sample of Chinese manufacturing firms during the period of 1998-2007, show that both innovation and BG affiliation have a positive effect on exports, although BG affiliation weakens the positive value of innovation to exports. These findings are robust in different specifications. This paper highlights the complex role played by BGs, which needs to be understood in the context of institutions.