Exporting Knowledge-Intensive Business Services (KIBS): Innovation and Complementary Factors

This paper investigates the impact of innovation on the export performance of Knowledge-Intensive Business Services (KIBS) firms. It contrasts two competing hypotheses: the diminishing returns hypothesis, which predicts a positive but weaker effect of innovation on exporting for KIBS firms than for traditional services; and the complementarity hypothesis, which predicts a positive and stronger effect for KIBS firms, based on the presence of complementary factors that enhance their innovation capabilities. To test these hypotheses, the paper applies a three-stage structural model (i.e., the CDM model) to a large-scale firm-level innovation survey in Colombia, covering 25,996 observations from 2014 to 2019. The empirical results support the complementarity hypothesis, showing that innovation increases the likelihood of exporting for KIBS firms more than for traditional services. The paper also identifies the main complementary factors that boost the innovation performance of KIBS firms, such as superior management practices, higher investment in information and communication technologies for innovation purposes, and stronger commitment to employee training in innovation-related tasks. Based on these findings, the paper discusses how innovation policy can facilitate the entry of KIBS firms into foreign markets, as a key element of a modern productive development strategy.