The dynamics of exports and R&D in SMEs Silviano Esteve-Pe ´rez • Diego Rodrı ´guez Accepted: 1 February 2012 / Published online: 24 March 2012 Ó Springer Science+Business Media, LLC. 2012 Abstract A growing body of literature is exploring firm export and R&D activities. However, most studies examine the first one, whilst considering the second as an explanatory variable or vice versa. This paper contributes to this literature by exploring the joint dynamics of exports and R&D using data from a representative sam- ple of small and medium-sized enterprises in Spanish manufacturing over the 1990–2006 period. The results confirm the existence of a strong interdependence between export and R&D activities. Indeed, engaging in export (R&D) activities will increase a firm’s chances of also engaging in R&D (export) activities. This, in turn, increases firms’ chances of succeeding in export (R&D) activities. Additionally, once we control for firm heter- ogeneity, strong persistence still remains in each activity due to true state dependence. The results are robust in the use of alternative measures of internationalization (i.e. imports) and innovative activities (product and process innovation). Keywords SMEs  R&D  Exports  Binary choice panel data models JEL Classifications F12  L25  C25  L26 1 Introduction The ability of a business to participate in export markets is often seen as an indicator of its competi- tiveness and success. The evidence for this suggests that exporters are more productive than non-exporters (for an overview, see Wagner 2007; Greenaway and Kneller 2007). Recently, some papers have examined the potential role of firms’ investments in R&D in explaining such differences. Interestingly, Aw et al. (2008, 2011) point out that technology and export decisions are interdependent and may affect a firm’s future performance. The cognitive approach to the firm (Dosi and Malerba 1996) provides a complemen- tary rationale for the existence of interdependence between exporting and innovative activities. 1 These activities enlarge a firm’s knowledge base and raise its competitive advantage. However, the relationship between R&D and export activities has frequently been overlooked by previous firm-level studies. Commonly, these studies have focused on one of S. Esteve-Pe ´rez (&) Department of Applied Economics II, Universitat de Vale `ncia, Avda. de los Naranjos, s/n, 46022 Valencia, Spain e-mail: sesteve@uv.es D. Rodrı ´guez Department of Applied Economics II, Universidad Complutense de Madrid, 28233 Madrid, Spain e-mail: drodri@ccee.ucm.es 1 We are grateful to an anonymous referee for drawing our attention to this point. 123 Small Bus Econ (2013) 41:219–240 DOI 10.1007/s11187-012-9421-4