Which Portuguese firms are most innovative? The importance of multinationals and exporters * Armando Silva, † Oscar Afonso ‡ and Ana Paula Africano § Abstract In this study we test the trade Global Engagement hypothesis in which firms most globally engaged – either multinationals or exporters – are most innovative. The test is applied to the data of 4,815 Portuguese firms for the period 2002-2004 by using the fourth Portuguese Community Innovation Survey. We estimated several Knowledge Production Functions, assuming that knowledge outputs result from the combination of some knowledge inputs with the flow of ideas coming from the existing stock of knowledge. We found that the more internationally exposed firms create more knowledge output than their domestic counterparts; indeed, the more globalized firms use more inputs and have the opportunity to use a larger stock of knowledge. Notwithstanding this, the observed superiority of the more internationally exposed firms is also the result of their globalized nature, not directly connected with knowledge inputs or information flows. Keywords: Multinational firms, exporting, knowledge-production functions, Portugal JEL classification: F14, F23, O31 * This work contains statistical data from the Comunnity Innovation Survey 4 for Portugal. The data is used by permission of GPEARI/MCTES but does not imply the endorsement of GPEARI/MCTES in relation to the interpretation or analysis of the statistical data. † Faculdade de Economia, Universidade do Porto, Escola Superior de Estudos Industriais e de Gestão (ESEIG). ‡ Faculdade de Economia, Universidade do Porto, CEFUP. Corresponding author. Email: oafonso@fep.up.pt; Adress: Rua Dr. Roberto Frias, 4200-464 Porto, Portugal. § Faculdade de Economia, Universidade do Porto, CEFUP.