Product innovation and export strategy

This paper analyses the relationship between innovation and export performance. More specifically, we highlight the effect of the introduction of new products on the quality and prices charged by firms in international markets. We develop a model to explain the mechanism underlying the relationship between innovation and product quality. Using a unique database of new product launches combined with data on production and trade in the French dairy industry, we tested this mechanism in several ways. Our results show that the export prices charged by the firms increase after the introduction of a new product in a given market. We also show that the projected quality of the new product increases after its introduction in a given market. This confirms the quality-upgrading effect of innovation at the product level.