Are Innovation and Internationalization Related? An Analysis of European Countries

This paper examines the relationship between countries' international profile and their innovation performance using data for 32 European countries. The overall contribution of the paper lies in: (a) an in-depth exploration of empirical correlations between innovation and several indicators of internationalization; and (b) the use of theoretical arguments—backed up by the literature—on why the observed correlations are not spurious but indicative of possible causality. Indicators of internationalization are considered with respect to each country as aggregate, to its technology-intensive industries only, and in relation to the share of its firms reporting international activities. On the basis of the empirical results, and the theoretical arguments presented, the paper suggests that underpinning the association is a virtuous (or vicious) circle: innovative firms are more successful in competing internationally and the exposure to alternative business and innovation contexts leads to innovation. This is an Accepted Manuscript of an article published by Taylor & Francis in Industry and Innovation on 7 July 2011, available online: http://www.tandfonline.com/10.1080/13662716.2011.583461